<PAGE>
As filed with the Securities and Exchange Commission on October 30, 2000
Registration No. 33-6364
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X_/
POST-EFFECTIVE AMENDMENT NO. 16 /_X_/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT /_X_/
COMPANY ACT OF 1940
AMENDMENT NO. 18 /_X_/
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THE BUTTONWOOD FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Janney Montgomery Scott LLC
2 Bala Cynwyd Plaza
Bala Cynwyd, PA 19004
(Address of Principal Executive Offices)
Registrant's Telephone Number: (215) 667-7007
JAMES W. JENNINGS, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, PA 19103
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to Paragraph (b) :
[X] on November 1, 2000 pursuant to Paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to Paragraph(a)(1)
[ ] on __________ pursuant to Paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to Paragraph (a)(2)
[ ] on __________ pursuant to Paragraph (a)(2) of Rule 485
<PAGE>
PROSPECTUS
November 1, 2000
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THE BUTTONWOOD FUNDS, INC. LOGO
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BUTTONWOOD CAPITAL APPRECIATION
Buttonwood Capital Appreciation is a mutual fund that seeks
long-term capital appreciation and is managed by Independence Capital
Management, Inc.
DISTRIBUTOR
[JMS logo]
JANNEY MONTGOMERY SCOTT LLC
1801 Market Street
Philadelphia, Pennsylvania 19103
In Philadelphia, Pennsylvania (215) 665-6000
Outside Philadelphia, Pennsylvania (800) 331-3186
SOLICITING DEALER
HORNOR, TOWNSEND & KENT, INC.
600 Dresher Road
Horsham, Pennsylvania 19044
In Philadelphia, Pennsylvania (215) 957-7300
Outside Philadelphia, Pennsylvania (800) 225-7637
The Securities and Exchange Commission has not approved
or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation
to the contrary is a criminal offense
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How to Read your Prospectus
This prospectus gives you important information about Buttonwood Capital
Appreciation (the "Fund"), a class of The Buttonwood Funds, Inc. (the "Company")
that you should know before investing. Please read this prospectus and keep it
for future reference. This prospectus has been arranged into different sections
so that you can easily review this important information. For more detailed
information about the Fund, please see:
Page
Summary .......................................................................2
Fund Fees and Expenses.........................................................4
About the Fund ................................................................4
Management.....................................................................6
Purchasing, Selling and Exchanging Fund Shares.................................7
Retirement Plans..............................................................10
Dividends and Distributions...................................................11
Taxes.........................................................................11
Financial Highlights..........................................................12
Application for Pre-Authorized Check Plan.....................................13
Account Application...........................................................15
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<PAGE>
SUMMARY
Objective and Strategy
The Fund is a mutual fund that has an investment objective of long-term capital
appreciation. Independence Capital Management, Inc. ("ICMI" or the "Adviser")
acts as the Fund's investment adviser and invests Fund assets in a way that it
believes will help the Fund achieve its goal. ICMI believes that the Fund's
investment objective can best be met by investing primarily in equity securities
of companies that have demonstrated business success and which ICMI believes
have the ability to sustain earnings growth relative to expectations. The Fund
will normally be fully invested.
Investor Profile
The Fund may be suited for you if you are seeking long-term capital appreciation
and are willing to accept the share price volatility of equity investing.
Risk Factors
Investing in the Fund involves risks, and the Fund may not achieve its goal. The
Adviser's judgments about the markets, the economy or companies may not
anticipate actual market movements, economic conditions or company performance,
and these judgments may affect the return on your investment.
The value of your investment in the Fund is based on the market value of the
securities the Fund holds. The value of an investment in the Fund will vary from
day to day based on changes in the prices of the securities in the Fund's
portfolio. These prices change daily due to economic and other events that
affect particular companies and other issuers. These price movements, sometimes
called volatility, may be greater or lesser depending on the types of securities
the Fund owns and the markets in which they trade. The Fund's investments will
have moderate to high price volatility as compared to other asset classes.
An investment in the Fund could lose money, just as with other investments. A
Fund share is not a bank deposit, and it is not insured or guaranteed by the
FDIC or any other government agency.
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Performance Information(1)
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The Fund's past performance does not
necessarily indicate how the Fund will perform in the future. These figures
assume that all distributions were reinvested.
This bar chart shows changes in the performance of the Fund's shares from year
to year for ten years.*
-6.43% 30.65% 6.50% 13.00% -6.72% 40.28% 23.18% 29.30% 0.37% -4.79%
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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
* The performance information shown above is based on a calendar year.
During the above period, the highest return for a quarter was 16.14% (quarter
ended March 31, 1991) and the lowest return for a quarter was -18.36% (quarter
ended September 30, 1998).
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of an unmanaged market index.
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1 Year 5 Years 10 Years
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The Fund -4.79% 16.38% 11.35%
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S&P 500(R) Index* 21.04% 28.54% 18.21%
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* The Standard & Poor's 500 Composite Index is an unmanaged index that is a
widely recognized benchmark of general market performance. The index is a
passive measure of equity market returns.
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(1) The performance information above reflects the time period when the Fund was
managed by Addison Capital Management Company. ICMI became the Fund's adviser
effective December 31, 1999.
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FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. The Fund imposes no sales load on purchases or reinvested
dividends; nor does it impose deferred sales charges, redemption fees or
exchange fees.
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SHAREHOLDER FEES
(Fees paid directly from your investment)
None.*
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ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
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Investment Advisory Fees 0.75%
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Distribution (12b-1) Fees 0.65%
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Shareholder Servicing Fees 0.25%
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Other Expenses 0.68%
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Total Annual Fund Operating Expenses 2.33%
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Less Fee Waivers (0.25)%**
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Net Expenses 2.08%
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* The Fund's distributor agreed to waive the front end sales charge of 3% for
all shares purchased since July 3, 1995.
** The Fund's distributor has contractually agreed to reduce the distribution
fee from 0.65% to 0.40%. In both instances, the Fund's distributor has
committed not to discontinue these fee waivers for at least one year from
November 1, 2000, and not without the affirmative vote of the Fund's
independent directors.
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Example
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This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and you redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and Fund expenses remain the same.
Although your actual costs and returns might be different, your approximate
costs of investing $10,000 in the Fund would be:
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1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
The Fund $211 $652 $1,118 $2,407
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Over time, payment of 12b-1 fees may exceed the maximum sales charges permitted
by the Conduct Rules of the National Association of Securities Dealers, Inc.
ABOUT THE FUND
Investment Objective and Strategy
The Fund's objective is long-term capital appreciation. The Fund seeks to
increase the value of your investment over the long-term (referred to as
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<PAGE>
long-term capital appreciation), primarily through the purchase of common stocks
of well-established U.S. companies that the Adviser believes have long-term
growth potential. A security may be appropriate in the Adviser's view because of
many factors, including consistently strong earnings and sales gains and other
financial characteristics that support growth expectations. The Adviser believes
that, over time, the earnings of well-established companies will not be as
adversely affected by unfavorable economic conditions as the earnings of more
cyclical companies and the Fund's investments will tend to consist of large
companies (over $5 billion in market value). The Fund invests primarily in the
common stocks of U.S. companies and will invest in securities of a variety of
companies in order to diversify across economic sectors. Portfolio exposure is
limited to a maximum of 5% in any single issuer. The Fund generally will sell a
portfolio investment when the security no longer satisfies the Adviser's
investment criteria.
Although the Fund will generally be fully invested, the Fund may make temporary
defensive investments that are otherwise inconsistent with the Fund's principal
investment strategies in an attempt to respond to adverse market, economic,
political or other conditions. While the Fund is engaged in a temporary
defensive strategy, it may not achieve its investment objective. The Fund may
also invest in some securities of foreign companies. Investments in securities
of foreign companies that are not traded on the New York Stock Exchange or the
NASDAQ National Market System will constitute less than 10% of the Fund's
assets.
The Fund may change its investment strategies, but not its objective, without
shareholder approval. You would be notified, however, if there are any changes.
Risks
The value of Fund shares will change primarily with changes in the prices of the
common stocks the Fund holds. The prices of common stocks will increase and
decrease based on developments affecting particular companies and to general
economic conditions that affect industry sectors or the securities markets as a
whole. Common stocks are more volatile than other types of securities but, over
time, common stocks have shown greater potential for capital appreciation. Since
the Adviser intends to invest Fund assets in common stocks of well-established
companies, the price volatility may be less than with smaller, less
well-established companies. In addition, the Adviser's growth and income
strategy may underperform other investment strategies or the markets as a whole.
The Fund's investments in foreign securities involve risks that are in addition
to the risks of U.S. investments. Foreign investments are subject to risks such
as possible problems arising from accounting, disclosure, settlement, and
regulatory practices that differ from U.S. standards.
The performance of the Fund will depend on how successful the Adviser is in
pursuing the Fund's investment strategies, and there is no assurance that the
Adviser will be successful in this regard. The Adviser may simply do a poor job
of selecting investments. In addition, there may be times when the great
majority of the securities that fit within the Fund's investment objective are
declining in value, and you would make more money in a federally insured bank
account.
With all of these risks, when you sell Fund shares, they may be worth less than
what you paid for them.
-5-
<PAGE>
MANAGEMENT
Investment Adviser
The Fund's investment adviser, Independence Capital Management, Inc., makes
investment decisions for the Fund and continuously reviews, supervises and
administers the Fund's investment program. The Adviser also ensures compliance
with the Fund's investment policies and guidelines. The Adviser's address is
Five Radnor Corporate Center, Suite 450, 100 Matsonford Road, Radnor, PA 19087.
Independence Capital Management, Inc., a wholly-owned subsidiary of The Penn
Mutual Life Insurance Company, has been in business since 1989 and had
approximately $2.2 billion in assets under management as of September 30, 2000.
ICMI began managing the Fund's assets as of December 31, 1999. Prior to that,
Addison Capital Management Company was the Fund's investment adviser. At a
Special Meeting of the Board of Directors of the Fund held on October 27, 1999,
the Board, including a majority of the independent directors, voted to terminate
the Fund's advisory agreement with Addison Capital Management Company, subject
to shareholder approval of a new investment advisory agreement with ICMI. The
Board voted in favor of the change in hopes that ICMI would improve the
investment performance of the Fund. A Special Meeting of Shareholders was held
on December 16, 1999, at which time shareholders voted to approve a new
investment advisory agreement between the Fund and ICMI. Since Addison Capital
Management Company is no longer the adviser, the Board of Directors changed the
name from Addison Capital Shares, Inc. to The Buttonwood Funds, Inc.
A team of investment professionals led by Richardson T. Merriman and Willard N.
Woolbert, are responsible for day-to-day operation of the Fund.
Mr. Merriman has been with ICMI and its affiliated investment management firm,
The Pennsylvania Trust Company, since 1986. He is currently Senior Vice
President of ICMI and oversees the investment policies, strategies and security
selection for ICMI and The Pennsylvania Trust Company, of which he is President
and Chief Executive Officer. He has over 25 years of investment management
experience. Mr. Merriman is a member of the Financial Analysts of Philadelphia,
The Association of Investment Management and Research and the Philadelphia
Securities Association. He earned a B.A. in Economics from Rollins College and
an M.B.A. from New York University.
Mr. Woolbert has been with ICMI since 1998 and is currently Vice President. He
has over 25 years of money management experience and, as Senior Vice President
of The Pennsylvania Trust Company, is responsible for developing and
implementing investment policies, strategies and security selection. Prior to
joining ICMI, Mr. Woolbert was a Vice President of PNCBank from 1990-1998 where
he had responsibility for managing equity investments. He is a member of the
Financial Analysts of Philadelphia and The Association for Investment Management
and Research. He received an A.B. in History from Brown University and an M.B.A.
from Drexel University.
For the fiscal year ended June 30, 2000, the Fund paid investment advisory fees
of 0.75% of the average daily net assets of the Fund. The Adviser has agreed to
pay Janney Montgomery Scott LLC ("Janney") an amount equal to 0.25% of the
Fund's average net assets for Janney's efforts in selling and marketing the
shares of the Fund.
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<PAGE>
Administration
PFPC, Inc. provides certain administrative and accounting services, including
bookkeeping, record maintenance, and preparation of filings required by the
Securities and Exchange Commission and federal and state tax authorities, for
the Fund. PFPC's annual fees, payable monthly, for these services equal 0.10% of
the Fund's average daily assets, with a minimum annual fee of $100,000. PFPC has
agreed to reduce its minimum annual fee to $65,000 effective April 1, 2000. The
Fund also reimburses PFPC for certain disbursements. These amounts do not
include fees payable to the Transfer Agent and PNCBank (the "Custodian") for
their services. PFPC is a wholly-owned subsidiary of the Custodian.
Shareholder Services
Janney provides office space to the Fund, oversees PFPC's performance of its
duties under the Administration and Accounting Services Agreement, oversees the
performance by the Custodian and Transfer Agent of their respective duties to
the Fund and responds to shareholder inquiries, for an annual fee equal to 0.25%
of the Fund's average daily net assets. This fee is in addition to the annual
distribution fee which Janney also receives from the Fund.
PURCHASING, SELLING AND EXCHANGING FUND SHARES
New Accounts
In order to open a new account, please contact your Janney broker or a
representative of Hornor, Townsend & Kent, Inc. ("HTK"). You may also open a new
account by completing and returning the Account Application that is attached to
this Prospectus. If you want to invest in Fund shares through an IRA or other
retirement plan, your broker or HTK representative will provide you with the
appropriate documents.
The Fund's minimum initial investment is $1,000 ($250 for an IRA account) with a
$50 minimum on subsequent purchases. This minimum may be waived to meet Internal
Revenue Code maximum contributions on IRA accounts.
When Can You Purchase Shares?
You may purchase shares of the Fund on any day that the New York Stock Exchange
(the "Exchange") is open for business (a "Business Day").
The Fund may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Fund or its shareholders.
What Shares Will Cost
The price per share (the offering price) will be the net asset value per share
next determined after the Fund receives your purchase order. The net asset value
for one Fund share is the value of that share's portion of all of the net assets
in the Fund. The Fund's net asset value is calculated once each Business Day at
the regularly-scheduled close of normal trading on the Exchange (normally, 4:00
p.m. Eastern time). To receive the current Business Day's net asset value, the
Fund must receive your purchase order before 4:00 p.m. Eastern time.
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<PAGE>
In calculating the net asset value, the Fund generally values its investment
portfolio at market price. If market prices are unavailable or may be
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Directors.
Except with respect to certain orders for Fund shares to be invested in an IRA,
orders accepted by Janney or HTK before the close of business of the Exchange on
any day that the Exchange is open for business will be executed at the net asset
value determined as of the close of the Exchange on that day. Orders accepted by
Janney or HTK after the close of the Exchange will be executed at the net asset
value determined as of the close of the Exchange on the next trading day. Fund
shares ordered through the Fund's Pre-authorized Check Plan will be purchased at
the net asset value determined on the close of business of the Exchange on the
date each month the Custodian draws a check on your account. Fund shares
purchased through an automatic monthly transfer of funds from your account to
the Custodian will be purchased at the net asset value determined at the close
of business of the Exchange on the respective date such transfer is made.
Purchasing Additional Shares
1. Through the Pre-authorized Check Plan and Other Transfers of Funds from
Financial Institutions
Once you are a Fund shareholder, you can make additional investments through the
Pre-authorized Check Plan for convenient automatic monthly investments. In
addition, certain financial institutions may allow you to request the automatic
transfer of $50 or more on a monthly basis to the Custodian, for investment in
shares of the Fund.
2. Open Account Program
If you do not elect otherwise on your application to purchase Fund shares, you
are automatically enrolled in an Open Account Program. You may schedule your
purchases to suit your personal requirements. As each payment is received by the
Transfer Agent, full and fractional shares will be purchased at the next
effective offering price and proper entry is made on the books of the Fund.
3. By Phone
Current shareholders may also purchase shares by phone by calling their Janney
broker or HTK representative. Purchases must be paid within three business days
of the phone order.
How to Sell or Redeem Shares
You can sell and receive cash for your Fund shares in two ways.
1. You may give your Janney broker or HTK representative an order. Janney or HTK
will transmit your order to the Fund for processing as a redemption request.
Neither Janney nor HTK will impose any separate charge or fee for this
service.
2. If you hold your Fund shares in certificate form, or if you do not hold Fund
shares in a Janney or HTK account, you may send a written request for
redemption to Buttonwood Capital Appreciation, c/o PFPC, Inc., P.O. Box 8916,
Wilmington, DE 19899-8916. The request will be considered to be received in
"good order" only if:
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<PAGE>
o You have indicated in writing the number of shares to be redeemed and your
shareholder account number.
o The written request is signed by you and by any co-owner of the account
with exactly the same name or names used in establishing the account.
o The written request is accompanied by any certificates representing the
shares that have been issued to you, and you have endorsed the certificates
for transfer or an accompanying stock power exactly as the name or names
appear on the certificates.
o The signatures on the written redemption request and on any certificates
for your shares (or an accompanying stock power) have been guaranteed by a
national bank, a state bank (not including a savings bank) or a trust
company, or by Janney, HTK or by any other member firm of the New York,
American, Boston, Midwest, Pacific or Philadelphia Stock Exchanges.
Other supporting legal documents may be required from corporations or other
organizations, fiduciaries or persons other than the shareholder of record
making the request for redemption or repurchase. If you have a question
concerning the sale of Fund shares, contact your Janney broker or HTK
representative.
If the redemption request is received by the Transfer Agent, Janney or HTK
before the close of business of the Exchange, the shares will be redeemed at the
net asset value per share determined at the close of the Exchange on that day.
Requests received by the Transfer Agent, Janney or HTK after the close of
business of the Exchange or on a day when the Exchange is not open for business
will be executed at the net asset value determined at the close of the Exchange
on its next trading day.
Systematic Withdrawal Plan
You may elect to make systematic withdrawals from your Fund account at a minimum
of $50 on a monthly basis or $150 on a quarterly basis if you are purchasing or
already own shares with a net asset value of $10,000 or more. Please contact
Janney or HTK for further information.
Redemptions In Kind
The Fund generally pays redemption proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) the Fund might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). Although it is highly unlikely that your shares would ever
be redeemed in kind, you would probably have to pay brokerage costs to sell the
securities distributed to you, as well as taxes on any capital gains from the
sale, as with any other redemption.
Receiving Your Money
Normally, the Fund will send your sale proceeds within three business days after
it receives your request in good order, but it may take up to seven days. Your
proceeds can be wired to your bank account (subject to a wire fee, currently
$15) or sent to you by check. If you recently purchased your shares by check or
through Automated Clearing House (ACH), redemption proceeds may not be available
until your check has cleared (which may take up to 15 days from the date of
purchase).
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<PAGE>
Exchange Privilege
Shares of the Fund may be exchanged for shares of the Janney Money Market Fund
portfolios ("JMS Money Market portfolios"). Shares of the Fund and the JMS Money
Market Fund portfolios are exchanged at their respective net asset values.
However, when you exchange shares you are really selling your shares and then
buying other shares. The JMS Money Market portfolios do not presently impose any
sales charges. Further information concerning this privilege is contained in the
Fund's Statement of Additional Information.
Suspension of your right to sell shares
The Fund may suspend your right to sell your shares during any period that the
Exchange is closed or trading on the Exchange is restricted as determined by the
SEC; during any period when an emergency exists as defined by the rules of the
SEC as a result of which it is not practicable for the Fund to dispose of
securities or fairly determine the value of its assets; and for such other
periods as the SEC may permit.
Involuntary sale of your shares
If your account balance drops below the required minimum of $500, you may be
required to sell your shares. You will be given at least 60 days' written notice
to give you time to add to your account and avoid selling your shares.
Distribution of Fund Shares
Janney is the distributor of the Fund's shares. Janney has entered into a dealer
agreement with HTK to sell Fund shares pursuant to which HTK may be deemed to be
an underwriter under the Securities Act of 1933. Neither Janney nor HTK receives
sales commissions for distributing the Fund's shares. However, the Fund pays
Janney 0.25% of the Fund's average daily net assets as a shareholder servicing
fee. In addition, the Fund has adopted a distribution plan that allows the Fund
to pay up to 0.65% of the Fund's average daily net assets to Janney for
distributing the Fund's shares. Janney has contractually agreed to reduce this
fee to 0.40%. The Adviser pays Janney, out of its own assets, 0.25% of the
Fund's average daily net assets as an additional incentive to market the Fund's
shares.
RETIREMENT PLANS
An investment in Fund shares may be appropriate for IRAs as well as self
employed and corporate retirement plans. Investors who are considering
establishing such a plan may wish to consult their attorney or tax adviser with
respect to individual tax questions. Janney and HTK can make forms of
self-directed IRAs available to you (whether Traditional, Education, SEP, Simple
or Roth).
The Internal Revenue Code requires the custodian of any IRA to furnish each
individual benefitting from an IRA with a copy of the governing instrument used
to establish the IRA and a disclosure statement satisfying the requirements of
regulations under Section 408 of the Internal Revenue Code no later than the
earlier of the date of establishment or purchase of the IRA. If, however, the
governing instrument and disclosure statement are not furnished to such
individual at least seven days preceding the earlier of the date of purchase or
establishment of the IRA, the individual must be permitted to revoke his IRA and
receive a full refund for a period of seven days from the earlier of those
dates. If the revocation period applies, Janney, as custodian of a Janney
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<PAGE>
self-directed IRA will hold the individual's initial payment to his IRA in a
suspense account until the expiration of the seven-day period. Thereupon, if the
IRA has not been revoked, such payment will be applied to the purchase of Fund
shares at the net asset value next calculated following such expiration date
plus the appropriate sales charge. No interest will be paid on funds held in
such suspense account. An order placed with Janney or HTK on behalf of a Janney
self-directed IRA will not be transmitted to the Fund until Janney or HTK
receives a check and completed IRA application.
The option of making contributions to the above plans through regular payroll
deductions may be arranged with Janney or HTK and your employer. Additional
information with respect to these plans is available upon request from any
Janney broker or HTK representative.
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes its investment income and capital gains, if any,
semi-annually as a dividend to shareholders.
If you own Fund shares on the Fund's dividend record date, you will be entitled
to receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution.
Alternatively, you may contact your Janney broker or HTK representative. Your
election will be effective for dividends and distributions paid after the Fund
receives your written notice. To cancel your election, send written notice to
the Fund.
TAXES
Please consult your tax adviser regarding specific questions about the federal,
state, local or foreign income tax consequences of your investment in the Fund.
We have summarized some important tax issues that affect the Fund and its
shareholders.
Tax-advantaged and other retirement accounts generally will not be subject to
federal taxation on income and capital gain distributions until you begin
receiving distributions from your retirement account. You should consult your
tax adviser regarding the rules governing your own retirement plan.
At least annually, the Fund will distribute substantially all of its net
investment income and net realized capital gains, if any. The dividends and
distributions you receive are subject to federal, state, local and foreign
taxation, depending upon your tax situation. In general, Fund distributions are
taxable to you as either ordinary income or capital gains. Any capital gains the
Fund distributes are taxable to you as long-term capital gains no matter how
long you have owned your shares. Distributions you receive from the Fund may be
taxable whether or not you reinvest them. Each sale or exchange of the Fund's
shares is a taxable event. A sale may result in a capital gain or loss for you.
The individual tax rate on any gain from the sale or exchange of your shares
depends on your marginal tax rate and how long you have held your shares. Every
January, you will receive a form showing the taxable distributions you received
for the previous calendar year.
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More information about taxes is in the Statement of Additional Information.
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the
shares of the Fund. This information is intended to help you understand the
Fund's financial performance for the past five fiscal years. Some of this
information reflects financial information for a single Fund share. The total
returns in the table represent the rate that you would have earned (or lost) on
an investment in the Fund, assuming you reinvested all of your dividends and
distributions. This information has been audited by Tait, Weller & Baker,
independent auditors. Their report, along with the Fund's financial statements,
appears in the annual report that is incorporated by reference to the Statement
of Additional Information. You can obtain the Fund's annual report, which
contains more performance information, at no charge by calling 1-800-331-3186.
<TABLE>
<CAPTION>
Financial Highlights (for a Fund share outstanding throughout the year)
-------------------------------------------------------------------------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
6/30/00 6/30/99 6/30/98 6/30/97 6/30/96
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year... $ 29.64 $ 33.28 $ 31.53 $26.42 $ 22.92
------- ------ ------- ------ -------
Income from Investment Operations
Net investment income (deficit)...... (0.06) 0.08 0.09 0.15 0.17
Net gains (losses) on securities (both
realized and unrealized)............ (3.28) (1.96) 5.41 7.60 5.42
------- ------- ------- ------ -------
Total from investment
operations............... (3.34) (1.88) 5.50 7.75 5.59
------- ------- ------- ------ -------
Less Distributions
Dividends from net investment
income.............................. (0.03) (0.09) (0.13) (0.15) (0.21)
Distributions from capital gains..... (2.40) (1.67) (3.62) (2.49) (1.88)
------- ------- ------ ------ -------
Total distributions........ (2.43) (1.76) (3.75) (2.64) (2.09)
------- ------- ------ ------ -------
Net asset value, end of year......... $23.87 $29.64 $ 33.28 $31.53 $ 26.42
======= ======= ====== ====== =======
Total return......................... (12.01)% (6.03)% 19.40% 32.20% 25.92%
Ratios/Supplemental Data
Net assets, end of year (in 000's).. $31,100 $61,199 $81,512 $66,609 $50,704
Ratio of expenses to average net
assets.............................. 2.08% 1.83% 1.75% 1.83% 1.96%
Ratio of net investment income
(deficit) to average net assets..... (0.17)% 0.25% 0.30% 0.54% 0.69%
Portfolio Turnover................... 71.23% 25.77% 28.14% 29.48% 38.97%
</TABLE>
-12-
<PAGE>
IF YOU WANT TO START A MONTHLY
INVESTMENT PROGRAM
--------------------------------------------------------------------------------
o Complete both parts of the bank draft authorization in the panel to the right
o Complete the Account Application on the next page
o Send
[] A check made out for the total amount of your initial investment
and
[] a blank check marked "void" to:
PFPC, Inc.
c/o Buttonwood Capital Appreciation
P.O. Box 8916
Wilmington, DE 19899-8916
(The blank check marked "void" is required because the Transfer Agent must
obtain, and retain in its records, an exact replica of the coding at the bottom
of the voided check so that it can arrange through appropriate bank channels
monthly withdrawals from your checking account.)
COMPLETE, DETACH AND MAIL WITH
COMPLETE ACCOUNT APPLICATION
<PAGE>
TO BEGIN BANK DRAFT INVESTING
THROUGH YOUR CHECKING ACCOUNT
(Pre-authorized Check Plan)
I hereby authorize PNCBank to draw $_______________ from my checking account
monthly, beginning with the 20th day of _______________ to be used to purchase
shares of Buttonwood (month)
Capital Appreciation for my account through the
--------------------------------------------------------------------------------
Name of Bank, Branch Name and Number (if any)
--------------------------------------------------------------------------------
Address of Bank or Branch
--------------------------------------------- ---------------------------------
(Routing symbol)
This authorization is subject to the provisions on the reverse side.
Name(s)_________________________________________________________________________
Street__________________________________________________________________________
City __________________________________________State________Zip_________________
Note: Please enclose a blank check marked "void"
----------------------------------------
AUTHORIZATION TO HONOR BANK DRAFTS
DRAWN BY PNCBANK
To:_____________________________________________________________________________
(Print Bank Name -- and Branch, if any)
________________________________________________________________________________
(Bank Address)
________________________________________________________________________________
For my convenience, I hereby request and authorize you to pay and charge to my
account checks drawn on my account by, and payable to the order of, PNCBank. I
agree that while this authorization remains in effect (1) your rights in respect
to each such check shall be the same as if it were signed personally by me, (2)
you shall be fully protected in honoring any such check and (3) if any such
check be dishonored, with or without cause, and whether or not inadvertently,
you shall be under no liability whatsoever.
This authorization shall remain in effect until you receive written revocation
signed by me.
________________________________________________________________________________
(Print Name of Depositor(s) as Shown on Bank Records)
________________________________________________________________________________
(Checking Account No.)
____________ _________________________________________________________________
(Date) (Signature of Depositor as Shown on Bank Records)
-13-
<PAGE>
BANK DRAFT AUTHORIZATION
The authorization on the reverse side is subject to the following provisions:
1. PNCBank shall collect the amount specified from the investor's personal
checking account, as authorized on the reverse side, by drawing checks on
such accounts to its own order.
2. Checks will be drawn once each month. The canceled checks will constitute
receipts for such amounts.
3. The privilege of making deposits under this service may be revoked by
PNCBank without prior notice if any check is not paid upon presentation.
PNCBank shall be under no obligation to notify the investor as to the
non-payment of any check.
4. This service may be discontinued by the investor by written notice to
PNCBank, which is received at least ten business days prior to the
collection date or at any time by PNCBank upon thirty days' written notice
prior to any collection date.
When this card has been completed, please mail to:
PFPC, Inc.
c/o Buttonwood Capital Appreciation
P.O. Box 8916
Wilmington, DE 19899-8916
Please enclose a voided blank check.
INDEMNIFICATION AGREEMENT
To: Bank named on the reverse side.
Your depositor executing the authorization on the reverse side is purchasing
shares of Buttonwood Capital Appreciation (the "Fund"), a mutual fund for which
PNCBank is custodian, and has authorized PFPC to collect the amounts indicated
for investment from his or her personal checking account by drawing checks on
such account to its order. In consideration of your compliance with such
depositor's request that you pay and charge to his or her account checks drawn
on such account by, and payable to the order of PNCBank, Janney Montgomery Scott
LLC ("Janney"), distributor for the Fund, hereby agrees:
1. To indemnify and hold you harmless from any loss you may suffer resulting
from or in connection with the execution and issuance of any check, whether
or not genuine, purporting to be drawn by or on behalf of and payable to
PNCBank on the account of your depositor executing the authorization on the
reverse side and received by you in the regular course of business through
normal banking channels for the purpose of payment, including any costs or
expenses reasonably incurred in connection with such loss, but excepting any
loss due to your payment of any check drawn against insufficient funds.
2. In the event that any such check shall be dishonored, whether with or
without cause, and whether intentionally or inadvertently, to indemnify you
and hold you harmless from any loss resulting from such dishonor, including
the costs and reasonable expenses.
Janney Montgomery Scott LLC
by James W. Wolitarsky, President
Authorized by a resolution adopted by the Managers of Janney
Montgomery Scott LLC
See preceding page
for instructions to
start a monthly
investment program.
-14-
<PAGE>
<TABLE>
<CAPTION>
THE BUTTONWOOD FUNDS, INC.
Buttonwood Capital Appreciation
ACCOUNT APPLICATION
Send Completed Application to: THE BUTTONWOOD FUNDS, INC.,
c/o JANNEY MONTGOMERY SCOTT LLC
2 BALA CYNWYD PLAZA, BALA CYNWYD, PA 19004
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ACCOUNT REGISTRATION
Owner (print) |__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| | SSN |__|__|__|-|__|__|-|__|__|__|__|
Co-owner (if any) |__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| | TIN |__|__|-|__|__|__|__|__|__|__|
Street Address |__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
City State Zip Code
*If joint registration is indicated, both must sign and the registration will be as joint tenants with right of survivorship and not
as tenants in common, unless otherwise specifically stated.
====================================================================================================================================
SUBSEQUENT INVESTMENTS/DIVIDENDS AND DISTRIBUTIONS -- Minimum initial investment is $1,000; thereafter $50. I enclose a check in the
amount of $_______________.
[ ] I intend, without obligation, to make additional investments in the amount of $____________________.
Dividend and other distributions election: (please check applicable box; if no box is checked, you will be deemed to have checked
box 1):
[ ] 1. All dividends and distributions of realized securities profits shall be accepted in additional shares at net asset value.
[ ] 2. All dividends shall be paid to me in cash and all distributions of realized securities profits will be accepted in additional
shares at net asset value.
[ ] 3. All dividends and distributions of realized securities profits shall be paid to me in cash.
------------------------------------------------------------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN: Minimum required investment is $10,000.
[ ] Monthly [ ] Quarterly $____________________ Starting the _________ day of __________________, 20__
------------------------------------------------------------------------------------------------------------------------------------
APPLICANT(S) SIGNATURE(S) Sign below exactly as printed in Account Registration:
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any taxable dividends, capital gains distributions and
redemption proceeds paid to any individual or certain other non-corporate shareholders who fail to provide the information and/or
certifications required below.
Under penalties of perjury, I certify that the information on this Account Application is complete and that as required by federal
law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct Social Security Number or Tax ID Number and (2) I am
not subject to any backup withholding either because (a) I am exempt from backup withholding, or (b)I have not been notified
by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided above, I have applied, or intend to apply, to the IRS or
the Social Security Administration for a Tax ID Number or Social Security Number, and I understand that if I do not provide
either number to the Transfer Agent within 60 days of the date of this Account Application or if I fail to furnish my
correct Tax ID Number or Social Security Number, I may be subject to a penalty and a 31% backup withholding on distributions
and redemption proceeds. (Please provide either number on IRS Form W-9. You may request such form by calling the Transfer
Agent at 1-800-331-3186.)
[ ] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes: ____________________________________________________________________________.
Under penalties of perjury, I certify that I am not a U.S. citizen or resident and I am an exempt foreign person as defined
by the IRS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The IRS does not require your consent to any provision of this document other than the certifications required to avoid backup
withholding.
<S> <C>
X________________________________________________________________ ________________________________________________________________
(Signature) (President, Trustee, General Partner or Agent)
X________________________________________________________________ ________________________________________________________________
(Signature) (Co-owner, Secretary of Corporation, Co-trustee, etc.)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
MUST BE COMPLETED BY DEALER Dealer's Name and Address:
---------------------------------------------------------
|__|__|__|__|__|__| |__|__|__|__|__|__| |__|__|__|__|__|__|__|__|
Invoice Date No. of Shares Trade Date
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
Representative's Last Name and Number
|__|__|__|-|__|__|__|-|__|__|__|__|
(Area Code) Representative's Phone Number
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
Dealer Branch Branch Number
--------------------------------------------------------------
Authorized Signature of Dealer
---------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE BUTTONWOOD FUNDS, INC.
BUTTONWOOD CAPITAL APPRECIATION
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investment Adviser
INDEPENDENCE CAPITAL MANAGEMENT, INC.
Five Radnor Corporate Center
Suite 450
100 Matsonford Road
Radnor, PA 19087
Distributor/Shareholder Servicing
JANNEY MONTGOMERY SCOTT LLC
1801 Market Street
Philadelphia, PA 19103
Soliciting Dealer
HORNOR, TOWNSEND & KENT, INC.
600 Dresher Road
Horsham, PA 19044
Transfer Agent
PFPC, INC.
P.O. Box 8916
Wilmington, DE 19899-8916
Independent Accountants
TAIT, WELLER & BAKER
8 Penn Center Plaza, Suite 800
Philadelphia, PA 19102
Legal Counsel
MORGAN, LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, PA 19103
<PAGE>
More information about the Fund is available without charge through the
following:
Statement of Additional Information
The SAI dated November 1, 2000, includes more detailed information about the
Fund. The SAI is on file with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
Annual and Semi-Annual Reports
These reports list the Fund's holdings and contain
information from the Fund's manager about strategies and
recent market conditions and trends. The reports also
contain detailed financial information about the Fund.
To Obtain More Information:
By Telephone: Call 1-800-526-6397, ext. 6119
------------
By Mail: Write to the Fund at:
-------
Janney Montgomery Scott LLC
Mutual Fund Department
1801 Market Street
Philadelphia, PA 19103
From the SEC:
You can also obtain the SAI or the Annual or Semi-Annual Reports, as well as
other information about the Fund, from the EDGAR Database on the SEC's website
("http://www.sec.gov"). You may review and copy documents at the SEC Public
Reference Room in Washington, D.C. (for information about the operation of the
Public Reference Room, call 1-202-942-8090). You may request documents by mail
from the SEC, upon payment of a duplicating fee, by writing to: Securities and
Exchange Commission, Public Reference Section, Washington, D.C. 20549-0102 or by
sending an electronic request to [email protected].
The Fund's Investment Company Act registration number is 811-4702
<PAGE>
---------------------
---------------------
THE BUTTONWOOD FUNDS, INC.
BUTTONWOOD CAPITAL APPRECIATION
---------------------
---------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Buttonwood Capital Appreciation Prospectus,
dated November 1, 2000, which has been filed with the Securities and Exchange
Commission. A copy of the Prospectus is available without charge from Janney
Montgomery Scott LLC (address and telephone number listed below).
JANNEY MONTGOMERY SCOTT LLC
1801 Market Street
Philadelphia, Pennsylvania 19103
In Philadelphia, Pennsylvania (215)665-6000
Outside Philadelphia, Pennsylvania (800)331-3186
Dated: November 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Fund Information...............................................................................B-3
Additional Information About Investment Limitations, Policies and Risks................................B-3
Risks.............................................................................................B-6
Additional Tax Information.............................................................................B-7
Additional Purchase and Redemption Information........................................................B-11
Pre-authorized Check Plan and Transfer of Funds from Financial Institutions......................B-11
Open Account Program.............................................................................B-11
Systematic Withdrawal Plan.......................................................................B-12
Redemption in Kind...............................................................................B-13
Exchange Privilege with JMS Money Market Fund Portfolios.........................................B-13
Valuation of Shares...................................................................................B-14
Calculation of Total Return...........................................................................B-14
Retirement Plans......................................................................................B-15
Additional Information Concerning the Fund's Management and Affiliations..............................B-15
Principal Shareholders................................................................................B-18
Investment Advisory and Other Services................................................................B-19
Portfolio Transactions and Brokerage..................................................................B-20
The Fund's Distributor................................................................................B-22
Description of Fund Shares............................................................................B-24
The Fund's Custodian, Transfer Agent and Dividend Disbursing Agent....................................B-25
The Fund's Legal Counsel..............................................................................B-25
Financial Statements..................................................................................B-26
The Fund's Independent Certified Public Accountants...................................................B-26
</TABLE>
B-2
<PAGE>
GENERAL FUND INFORMATION
Buttonwood Capital Appreciation (the "Fund"), a class of The Buttonwood
Funds, Inc. (the "Company") is an open-end diversified management investment
company which seeks long-term capital appreciation.
Important information concerning the Fund is included in the Fund's
Prospectus which may be obtained without charge from the Fund's distributor,
Janney Montgomery Scott LLC ("Janney"). Some of the information required to be
in this Statement of Additional Information is also included in the Fund's
current Prospectus. To avoid unnecessary repetition, references are made to
related sections of the Prospectus. In addition, the Prospectus and this
Statement of Additional Information omit certain information about the Fund and
its business that is contained in the registration statement respecting the Fund
filed with the SEC. Copies of the registration statement as filed, including
such omitted items, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
The Company was incorporated under the laws of the State of Maryland on
June 3, 1986. The Company filed a registration statement with the SEC
registering itself as an open-end diversified management investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act") and its shares under the Securities Act of 1933, as amended. The Company's
registration statement was declared effective by the SEC on June 10, 1986 and
the Company began operations on the same day. Prior to February 18, 2000, the
Company was named Addison Capital Shares, Inc. The Company's Articles of
Incorporation authorize the Board of Directors to issue up to two billion full
and fractional shares of capital stock. The Company presently has one class of
shares known as Buttonwood Capital Appreciation. The Company's Board has no
present intention of authorizing any additional classes of shares. The Company's
Articles of Incorporation authorize the Board of Directors to classify or
reclassify any unissued shares of the Company into one or more additional
classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. However, the Company's Board has no present intention of authorizing
any additional classes of shares.
ADDITIONAL INFORMATION ABOUT
INVESTMENT LIMITATIONS, POLICIES AND RISKS
In addition to the investment objectives and strategies described in
the Prospectus ("Summary" and "About the Fund"), the Fund has adopted certain
investment limitations that cannot be changed except by vote of a majority of
the Fund's outstanding voting securities. The Fund may not:
B-3
<PAGE>
1. Borrow money, except for temporary purposes, in an aggregate
amount not to exceed 5% of the value of its total assets at
the time of borrowing. Although not a fundamental policy
subject to shareholder approval, the Fund intends to repay any
such money borrowed before any additional portfolio securities
are purchased.
2. Mortgage, pledge or hypothecate any of its assets, except to
secure permitted borrowings up to 5% of the value of its total
assets at the time of borrowing.
3. Invest more than 5% of its total assets (taken at market value
at the time of the purchase) in securities of any one issuer,
other than the U.S. Government or its agencies and
instrumentalities, or buy more than 10% of the voting
securities or more than 10% of all the securities of any
issuer.
4. Invest more than 5% of its total assets (taken at market value
at the time of the purchase) in securities of companies that,
including their predecessors, have been in operation for less
than three years or in equity securities that are not readily
marketable.
5. Purchase securities on "margin".
6. Invest more than 25% of its total assets (taken at market
value) in any one industry.
7. Purchase or sell commodities and commodity contracts.
8. Underwrite the securities of other issuers, except that the
Fund may invest in securities that are not readily marketable
without registration under the Securities Act of 1933, as
amended, if immediately after the making of such investment
not more than 5% of the value of the Fund's total assets
(taken at cost) would be so invested.
9. Make loans, except loans of portfolio securities, except to
the extent a repurchase agreement may be considered a loan and
except to the extent the purchase of a portion of an issue of
publicly distributed notes, bonds or other evidences of
indebtedness or deposits with banks and other financial
institutions may be considered loans.
10. Write or purchase put, call, straddle or spread options.
11. Purchase or retain the securities of any issuer if the
officers or directors of the Fund, its investment advisers, or
other managers owning beneficially more than one-half of one
percent of such outstanding securities together own
beneficially more than five percent of such outstanding
securities.
B-4
<PAGE>
12. Purchase or sell real estate, except that the Fund may invest
in readily marketable securities secured by real estate or
interests therein or in readily marketable securities issued
by companies that invest in real estate or interests therein.
13. Purchase or sell interests in oil and gas or other mineral
exploration or development programs, except that the Fund may
invest in so-called master limited partnerships which have oil
and gas interests so long as such partnerships are listed on
the New York Stock Exchange or the American Stock Exchange or
are included in the National Association of Securities
Dealers, Inc. ("NASD") National Market System.
As noted above, the investment policies of the Fund described in the
preceding paragraphs, along with its objective described in the Prospectus, are
fundamental policies of the Fund and may not be changed without the vote of a
majority of the holders of the Fund's outstanding voting securities. Under the
Investment Company Act a "vote of a majority of the outstanding voting
securities" of the Fund means the affirmative vote of the lesser of (i) more
than 50% of the outstanding shares of the Fund; or (ii) 67% or more of the
shares present at a shareholders' meeting if more than 50% of the outstanding
shares are represented at the meeting in person or by proxy.
The Fund also may invest in foreign securities. It is presently the
Fund's intention that the value of investments in foreign securities which are
not traded on the New York or American Stock Exchange, or the NASDAQ National
Market System, will not exceed 10% of the value of its total assets.
Although not a fundamental policy subject to shareholder vote, so long
as the Fund's shares continue to be registered in certain states, the Fund may
not invest more than 5% of the value of its net assets, taken at the lower of
cost or market value, in warrants or invest more than 2% of the value of such
net assets in warrants not listed on the New York or American Stock Exchanges.
The Fund presently has no intention of purchasing any warrants during the
foreseeable future. In addition, although not a fundamental policy subject to
shareholder vote, the Fund may not make short sales of securities. Although not
prohibited by the Fund's fundamental investment policies, the Fund has no
present intention of loaning its portfolio securities to others. The Fund has
another non-fundamental policy that permits the purchase of securities of other
investment companies, to the extent permitted by the Investment Company Act. The
Investment Company Act generally limits the Fund (i) to purchasing 3% of the
total outstanding voting stock of a single other investment company; (ii) to
investing 5% of its total assets in the securities of a single other investment
company; and (iii) to investing 10% of its total assets in securities of all
other investment companies.
B-5
<PAGE>
When cash is expected to be available only temporarily, the Fund may
invest in repurchase agreements. A repurchase agreement is an agreement under
which either U.S. Government obligations or high quality debt securities are
acquired from a securities dealer or bank subject to resale at an agreed upon
price and date. The resale price reflects an agreed upon interest rate which is
unrelated to the interest rate provided by the securities which are transferred.
In these transactions, the securities are held for the Fund by its custodian as
collateral until retransferred and will be supplemented by additional collateral
(without cost to the Fund) if necessary to maintain a total value equal to or in
excess of the value of the repurchase agreements. Repurchase agreements are
usually for periods of one week or less, but may be for longer periods. The Fund
will not enter into repurchase agreements of more than seven days' duration if
more than 10% of its net assets would be invested in such agreements and other
illiquid investments. The Fund's adviser will monitor the credit-worthiness of
any party with whom the Fund has a then-outstanding repurchase agreement.
To the extent that proceeds from any sale upon a default of the
obligation to repurchase were less than the repurchase price, the Fund might
suffer a loss. If bankruptcy proceedings were commenced with respect to the
seller of the security, realization upon the collateral by the Fund could be
delayed or limited.
The timing of purchases and sales of Fund securities will be made
primarily on the investment merits of the securities. Only secondarily will such
timing be influenced by whether any gain from such transactions would be
classified as short-term or long-term for tax purposes. This factor may be
expected to result from time to time in a higher rate of portfolio turnover than
if both factors were given equal weight. High portfolio activity increases the
Fund's transaction costs, including brokerage commissions. To the extent
short-term trading results in realization of gains on securities held less than
twelve months, shareholders are subject to taxes at ordinary income tax rates.
See "Tax Status of Dividends and Capital Gains Distributions". However, it is
anticipated that the Fund will not realize substantial short-term capital gains.
Risks
The following risk factors are presented for background. Additional
factors are described in the Prospectus under "Risks" and "Other Risks".
Equity Securities. Equity securities, including common stocks,
represent an ownership interest in a corporation and have the least claim on a
company"s earnings and assets. In seeking investments for the Fund, the primary
consideration of the Fund's adviser, Independence Capital Management, Inc.
("ICMI" or the "Adviser"), is to invest in securities which the Adviser believes
have the ability to sustain earnings growth relative to expectations. However,
in selecting such securities, the opinions and judgments being exercised by the
Adviser may be contrary to those of the majority of investors. In certain
instances, such opinions and judgments will involve the risk of a correct
judgment by the majority, or an individual security or group of securities may
remain depressed for an extended period of time or even fall to a new low, in
which case losses or only limited profits may be incurred.
B-6
<PAGE>
Illiquid Securities. The Fund may purchase illiquid securities, which
include securities whose disposition is restricted by the securities laws. The
number of potential purchasers and sellers, if any, for such securities is
limited, and the ability of the Fund to sell such securities at their fair
market value may be limited. It is expected that investments in illiquid
securities, not including repurchase agreements, will not exceed 5% of the total
assets of the Fund at cost.
Repurchase Agreements. The Fund may enter into repurchase agreements
with banks and broker-dealers under which the Fund acquires a security (usually
a U.S. Government security) for cash and obtains a simultaneous commitment from
the seller to repurchase the security at an agreed-upon price and date. The
resale price is in excess of the acquisition price and reflects the agreed-upon
market rate unrelated to the coupon rate on the purchased security. Such
transactions afford an opportunity for the Fund to earn a return on temporarily
available cash at no market risk, although there is a risk that the seller may
default on its obligation to pay the agreed-upon sum at the re-delivery date.
Such a default may subject the Fund to expenses, delays and risks of loss.
Repurchase agreements with a maturity of more than seven days, taken together
with all of the Fund's other illiquid assets, will not exceed 15% of the Fund's
net assets. Repurchase agreements are considered loans under the Investment
Company Act.
ADDITIONAL TAX INFORMATION
The following is only a summary of certain additional federal income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult with their tax advisers
with specific reference to their own tax situation, including their state, local
and foreign tax liabilities.
Federal Income Tax Treatment of Dividends and Distributions
The following general discussion of certain federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. New legislation, as well as administrative
changes or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
B-7
<PAGE>
Qualification as a Regulated Investment Company
The Fund intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") as defined under Subchapter M of the Code. By
following such a policy, the Fund expects to eliminate or reduce to a nominal
amount the federal income taxes to which it may be subject, but can give no
assurances that its distributions will be sufficient to eliminate all taxes. The
Company's Board reserves the right not to maintain the qualification of the Fund
as a RIC if it determines such course of action to be beneficial to the
shareholders.
In order to qualify as a RIC, the Fund must distribute at least 90% of
its net investment income (that generally includes dividends, taxable interest,
and the excess of net short-term capital gains over net long-term capital losses
less operating expenses) and at least 90% of its net tax exempt interest income,
for each tax year, if any, to its shareholders and also must meet several
additional requirements. Included among these requirements are the following:
(i) at least 90% of the Fund's gross income each taxable year must be derived
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock or securities, and certain other
related income; (ii) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Fund's assets and that
does not represent more than 10% of the outstanding voting securities of such
issuer; and (iii) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer or of two or more issuers which the Fund controls and which are
engaged in the same, similar or related trades or businesses.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its net realized capital gains for any
taxable year, the Fund will be subject to federal income taxation to the extent
any such income or gains are not distributed. In addition, as discussed below, a
federal excise tax may be imposed in the event the Fund fails to meet certain
additional distribution thresholds.
If the Fund fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
the Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
Fund Distributions
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional shares, to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
B-8
<PAGE>
The Fund may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at long-term capital gains rates,
regardless of the length of time the shareholder has held the shares. If any
such gains are retained, the Fund will pay federal income tax thereon, and if
the Fund makes an election, the shareholders will include such undistributed
gains in their income, will increase their basis in Fund shares by the
difference between the amount of such includable gains and the tax deemed paid
by such shareholders, and will be able to claim their share of tax paid by the
Fund as a refundable credit.
In the case of corporate shareholders, distributions (other than
capital gains distributions) from a RIC generally qualify for the
dividends-received deduction to the extent of the gross amount of qualifying
dividends received by the Fund for the year. Generally, and subject to certain
holding period limitations, a dividend will be treated as a qualifying dividend
if it has been received from a domestic corporation. Accordingly, ordinary
income distributions from the Fund generally will qualify for the corporate
dividends-received deduction. All such dividends from the Fund (including the
deducted portion) are included in the corporation's alternative minimum tax
calculation.
Ordinarily, investors should include all dividends as income in the
year of payment. However, dividends declared payable to shareholders of record
in October, November, or December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholder and paid by the Fund in the year in which the dividends were
declared.
Shareholders who have not held Fund shares for a full year should be
aware that the Fund may designate and distribute, as ordinary income or capital
gain, a percentage of income that is not equal to the actual amount of such
income earned during the period of investment in the Fund.
The Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
Most foreign exchange gains realized on the sale of debt securities are
treated as ordinary income by the Fund. Similarly, foreign exchange losses
realized by the Fund on the sale of debt securities are generally treated as
ordinary losses by the Fund. These gains when distributed will be taxable to
shareholders as an ordinary dividend, and any losses will reduce the Fund's
ordinary income otherwise available for distribution to shareholders. This
treatment could increase or reduce the Fund's ordinary income distributions, and
may cause some or all of the Fund's previously distributed income to be
classified as a return of capital.
B-9
<PAGE>
The Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities, which may reduce the return on such
investments. It is not expected that the Fund will be able to pass-through to
shareholders their pro rata shares of foreign taxes paid by the Fund.
If a Fund's distributions exceed its taxable income and capital gains
realized during a taxable year, all or a portion of the distributions made in
the same taxable year may be recharacterized as a return of capital to
shareholders. A return of capital distribution will generally not be taxable,
but will reduce each shareholder's cost basis in a Fund and result in a higher
reported capital gain or lower reported capital loss when those shares on which
the distribution was received are sold.
Sale or Exchange of Fund Shares
Redemptions and exchanges of Fund shares are taxable transactions for
federal and state income tax purposes. If you hold your shares as a capital
asset, generally, gain or loss on the sale or exchange of a share will be
capital gain or loss that will be long-term if the share has been held for more
than twelve months and otherwise will be short-term. For individuals, net
short-term capital gains are currently taxed at ordinary income tax rates.
However, if a shareholder realizes a loss on the sale, exchange or redemption of
a share held for six months or less and has previously received a capital gains
distribution with respect to the share (or any undistributed net capital gains
of the Fund with respect to such share are included in determining the
shareholder's long-term capital gains), the shareholder must treat the loss as a
long-term capital loss to the extent of the amount of the prior capital gains
distribution (or any undistributed net capital gains of the Fund that have been
included in determining such shareholder's long-term capital gains). In
addition, any loss realized on a sale or other disposition of shares will be
disallowed to the extent an investor repurchases (or enters into a contract or
option to repurchase) shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the shares). This loss
disallowance rule will apply to shares received through the reinvestment of
dividends during the 61-day period. Any loss disallowed under these rules will
be added to the tax basis in the newly purchased shares.
In certain cases, the Fund will be required to withhold, and remit to
the United States Treasury, 31% of any distributions payable to any shareholder
who (1) has failed to provide a correct taxpayer identification number, (2) is
subject to backup withholding by the Internal Revenue Service, or (3) has failed
to certify to the Fund that such shareholder is not subject to backup
withholding. Non-U.S. investors in the Fund may be subject to U.S. withholding
and estate tax and are encouraged to consult with their tax adviser prior to
investing in the Fund.
B-10
<PAGE>
Federal Excise Tax
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon. However, the Fund can give no
assurances that its distributions will be sufficient to eliminate all taxes.
State and Local Taxes
Depending upon state and local law, distributions by the Fund to
shareholders and the ownership of shares may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers as to the
consequences of these and other state and local tax rules affecting an
investment in the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Pre-authorized Check Plan and Transfer of Funds from Financial Institutions
The Prospectus explains that you may buy additional shares of the Fund
through the Fund's Pre-authorized Check Plan. Under this plan, you may arrange
for automatic monthly investments in the Fund of $50 or more by authorizing the
Fund's custodian, PNCBank (the "Custodian"), to prepare a check each month drawn
on your checking account at a commercial bank. Each month the Custodian will
send a check to your bank for collection, and the proceeds of the check will be
used to buy shares of the Fund at the per share net asset value determined on
the day the check is sent to your bank. You will receive a confirmation after
each purchase of additional shares through your checking account, and the
canceled check will be returned to you by your bank with your regular checking
account statement.
You may also buy additional shares of the Fund through a plan
permitting transfers of funds from a financial institution. Certain financial
institutions may allow you, on a pre-authorized basis, to have $50 or more
automatically transferred monthly to the Transfer Agent for investment in shares
of the Fund.
If your check is not honored by the institution it is drawn on, you may
be subject to extra charges in order to cover collection costs. These charges
may be deducted from your shareholder account.
Open Account Program
If you do not elect otherwise on your application to purchase Fund
shares, you are automatically enrolled in an Open Account Program. You may
schedule your purchases to suit your personal requirements and you are not
obligated in any way. As each payment is received, full and fractional shares
will be purchased at the net asset value next determined and proper entry is
made on the books of the Fund.
B-11
<PAGE>
The market value of the Fund's shares is subject to fluctuation. Before
undertaking any plan for systematic investment, the investor should keep in mind
that such a program does not assure a profit or protect against a loss in
declining markets.
Systematic Withdrawal Plan
You may also elect to make systematic withdrawals from your Fund
account of a minimum of $50 on a monthly basis or $150 on a quarterly basis if
you are purchasing or already own shares with a net asset value of $10,000 or
more. The amounts paid to you each month or quarter will be obtained by
redeeming sufficient shares from your account to provide the withdrawal amount
that you have specified. The Systematic Withdrawal Plan will also be available
for shares held in an IRA, Keogh Plan, SEP or corporate retirement plan. You may
change the monthly or quarterly amount to be paid to you without charge not more
than once a year by notifying Janney or, if you purchased Fund shares through a
representative of Hornor, Townsend & Kent, Inc. ("HTK"), by notifying your HTK
representative. Redemptions will be made at net asset value determined as of the
close of business on the New York Stock Exchange (the "Exchange") on the 25th
day of each month or the 25th day of the last month of each quarter, whichever
is applicable. If the Exchange is not open for business on that day, the shares
will be redeemed at net asset value determined as of the close of business of
the Exchange on the preceding business day. The check for the withdrawal payment
will usually be mailed to you on the next business day following redemption. If
you elect to participate in the Systematic Withdrawal Plan, dividends and
distributions on all shares in your account must be automatically reinvested in
Fund shares. You may terminate the Systematic Withdrawal Plan at any time
without charge or penalty. The Fund, the Fund's transfer agent (the "Transfer
Agent"), and Janney also reserve the right to modify or terminate the Systematic
Withdrawal Plan at any time.
Withdrawal payments will be treated as sales of shares rather than as
dividends or capital gains distributions. These payments will be taxable to the
extent that the total amount of the payments exceeds the tax basis of the shares
sold. If the periodic withdrawals exceed reinvested dividends and distributions,
the amount of your original investment may be correspondingly reduced.
Ordinarily, you should not purchase additional shares of the Fund if
you maintain a Systematic Withdrawal Plan because you may incur tax liabilities
in connection with such purchases and withdrawals. The Fund will not knowingly
accept purchase orders from you for additional shares if you maintain a
Systematic Withdrawal Plan unless your purchase is equal to at least one year's
scheduled withdrawals. In addition, if you maintain a Systematic Withdrawal Plan
you may not make periodic investments under the Pre-authorized Check Plan.
B-12
<PAGE>
Redemption in Kind
In addition to the Fund's right to suspend or delay redemptions
described in the Fund's Prospectus, the Fund further reserves the right, if
conditions exist which make cash payments undesirable, to honor any request for
a redemption or repurchase order by making payment in whole or in part by
securities valued in the same way as they would be valued for purposes of
computing the Fund's per share net asset value. If payment is made in
securities, you may incur brokerage expenses in converting those securities into
cash, and will be subject to fluctuation in the market price of those securities
until they are sold.
Exchange Privilege with JMS Money Market Fund Portfolios
Shareholders may redeem shares of the Fund and use the proceeds to
acquire shares of the JMS Money Market Fund, the JMS Tax-Free Money Market Fund
and the JMS Government Money Market Fund (the "JMS Funds") without any service
charge. For tax purposes, any such redemption of Fund shares or JMS Funds shares
will be regarded as a sale on which a capital gain or loss may be realized by
the shareholder.
The JMS Funds are open-end investment companies, the shares of which
are sold without sales commission, investing exclusively in money market
instruments (Money Market Fund), tax-exempt money market instruments (Tax-Free
Money Market Fund), and U.S. Government issued or guaranteed marketable debt
obligations (Government Money Market Fund). The Fund and the JMS Funds have
materially different investment objectives and policies, investment portfolios
and methods of operations. The Fund and the JMS Funds have separate managements
and investment advisers. Janney acts as distributor for the Fund and the JMS
Funds. The Exchange Privilege does not in any way constitute an offering or
recommendation on the part of the Fund of an investment in shares of any of the
JMS Funds. Any shareholder who considers acquiring JMS Fund shares should first
obtain and review a prospectus before exercising the Exchange Privilege.
The Exchange Privilege may be terminated at any time by the Fund or the
JMS Funds. However, in such event, six months prior written notice of
termination must be given to the shareholders who hold JMS Fund shares pursuant
to the Exchange Privilege.
B-13
<PAGE>
VALUATION OF SHARES
As described in the Prospectus ("What Shares Will Cost"), the net asset
value per share of the Fund is determined once on each day on which the Exchange
is open, as of the close of the Exchange. The Fund expects that the days, other
than weekend days, that the Exchange will not be open are: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value of a Fund share is determined by dividing the value
of the total assets of the Fund, less liabilities, by the number of shares
outstanding. Net asset value is determined daily, as of the close of the
Exchange, on its customary business days. Securities owned by the Fund for which
market quotations are readily available are valued at current market value, or,
in their absence or when quotes may be unreliable, at fair value as determined
by the Fund's Board of Directors. Securities traded on an exchange or NASD
National Market System securities will be normally valued at last sale prices.
Other over-the-counter securities, and securities traded on exchanges for which
there is no sale on a particular day, are valued at the mean of the latest
closing bid and asked prices. Debt instruments that mature in sixty or fewer
days are valued at amortized cost.
CALCULATION OF TOTAL RETURN
From time to time, the Fund may advertise total return of the Fund.
These figures will be based on historical earnings and are not intended to
indicate future performance. Total return is a measure of the change in value of
an investment in the Fund over the period covered, which assumes any dividends
or capital gains distributions are reinvested immediately rather than paid to
the investor in cash. The formula for total return used herein includes four
steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment and annualizing the
result for periods of less than one year.
B-14
<PAGE>
Based on the foregoing, the average annual total return for the Fund
for the one-, five- and ten-year periods ended June 30, 2000, were as follows:
--------------------------------------------------------------------------------
Total Return
--------------------------------------------------------------------------------
One Year Five Years Ten Years
------------------------------ ---------------------------- --------------------
-12.01% 10.45% 10.50%
--------------------------------------------------------------------------------
The Fund may from time to time include total return in information
furnished to present or prospective shareholders. The Fund may from time to time
also include total return and the ranking of those performance figures relative
to such figures for groups of mutual funds categorized by Lipper, Inc.,
Morningstar, the Investment Company Institute and other similar services as
having the same investment objective as the Fund.
RETIREMENT PLANS
As noted in the Fund's Prospectus, an investment in Fund shares may be
appropriate for IRAs (whether Traditional, Educational, SEP, Simple or Roth),
and self-employed and corporate retirement plans. Unless the Fund is otherwise
directed, capital gains distributions and dividends received on Fund shares held
by any of these plans will be automatically reinvested in additional Fund shares
and will be exempt from taxation until distributed from the plans. Investors who
are considering establishing such a plan may wish to consult their attorneys or
tax advisers with respect to individual tax questions. The option of investing
in these plans through regular payroll deductions may be arranged with Janney or
HTK and your employer. Additional information with respect to these plans is
available upon request from any Janney broker or HTK representative.
Under the tax law as currently in effect, the Code imposes substantial
restrictions on your ability to make deductible contributions to an IRA.
ADDITIONAL INFORMATION CONCERNING THE
FUND'S MANAGEMENT AND AFFILIATIONS
The Fund's Board of Directors has overall responsibility for the
operation of the Fund.
The Fund's officers are responsible for the operation of the Fund under
the supervision of the Board of Directors. The directors and officers of the
Fund, their principal occupations during the past five years and other business
affiliations are set forth below. An asterisk (*) indicates directors who are
"interested persons" of the Fund as defined by the Investment Company Act. The
Fund's officers and directors own, as a group, less than 1% of the Fund's
outstanding shares.
B-15
<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Fund During Past Five Years
---------------- ------------- ----------------------
<S> <C> <C>
Richardson T. Merriman President and Chief Executive Senior Vice President, ICMI; President and Chief
Five Radnor Corporate Center Officer Executive Officer, The Pennsylvania Trust Company.
Suite 450
100 Matsonford Road
Radnor, PA 19087
Rudolph C. Sander* Chairman of the Board and Chairman and Manager, Janney Montgomery Scott LLC.
1801 Market Street Director
Philadelphia, PA 19103
Margaret M. Healy Director President, Rosemont College; Chief Financial Officer
Rosemont College and Lecturer in Philosophy, Bryn Mawr College,
Rosemont, PA 19010 1978-1995.
Charles E. Mather, III Director President and Director, Mather & Co. (insurance
226 Walnut Street brokers); Director, Christiana Bank & Trust (a state
Philadelphia, PA 19106 chartered bank not a member of the Federal Reserve
Board); Director and President, Finance Company of
Pennsylvania (a registered investment company).
Collin F. McNeil Director President, The PenJerDel Council (business
307 Fisher"s Road association) and President, The PenJerDel Regional
Bryn Mawr, PA 19010 Foundation (charitable foundation).
Willard N. Woolbert Vice President Vice President, ICMI; Senior Vice President, The
Five Radnor Corporate Center Pennsylvania Trust Company. Formerly, Vice
Suite 450 President, PNCBank, 1990-1998.
100 Matsonford Road
Radnor, PA 19087
Charles J. Sullivan Vice President Senior Vice President and Manager, Janney Montgomery
1801 Market Street Scott LLC.
Philadelphia, PA 19103
Barbara S. Wood, CPA Treasurer, Chief Financial Vice President, Treasurer and Compliance Officer,
Five Radnor Corporate Center Officer and Chief Accounting ICMI; Vice President and Treasurer, The Pennsylvania
Suite 450 Officer Trust Company. Formerly, Senior Vice President and
100 Matsonford Road Treasurer, Hornor, Townsend & Kent, Inc.
Radnor, PA 19087 (broker-dealer), 1995-December 1999.
James W. Jennings Secretary Partner, Morgan, Lewis & Bockius LLP.
1701 Market Street
Philadelphia, PA 19103
</TABLE>
B-16
<PAGE>
Officers and directors of the Fund who are interested persons of the
Fund receive no salary or fees from the Fund. Directors of the Fund who are not
interested persons of the Fund receive an annual fee of $5,000 and related
expenses for each meeting of the Board of Directors attended by them.
The following Compensation Table shows aggregate compensation paid to
each of the Fund's Directors by the Fund in the year ended June 30, 2000. The
Fund is not part of a Fund complex, as that term is defined under the Securities
Exchange Act of 1934 (the "1934 Act").
B-17
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
====================================================================================================================================
(1) Name of Person, (2) Aggregate (3) Pension or (4) Estimated Annual (5) Total Compensation
Position Compensation From Retirement Benefits Benefits Upon Retirement From Registrant and
Registrant for the Accrued as part of Fund Fund Complex Paid to
fiscal year ended June Expenses Directors for the
30, 2000 fiscal year ended June
30, 2000
====================================================================================================================================
<S> <C> <C> <C> <C>
*Rudolph C. Sander $0 $0 $0 $0
Chairman of the Board and
Director
Margaret M. Healy $6,250 $0 $0 $6,250
Director
William R. Dimeling(1) $3,750 $0 $0 $3,750
Director
Charles E. Mather, III $6,250 $0 $0 $6,250
Director
Collin F. McNeil(2) $1,250 $0 $0 $1,250
Director
====================================================================================================================================
</TABLE>
* A Trustee who is an "interested person" as defined in the Investment Company
Act.
(1) Resigned from the Board effective October 27, 1999.
(2) Elected to the Board on June 7, 2000.
Janney, a Delaware limited liability company, and HTK, a Pennsylvania
corporation, are wholly owned by The Penn Mutual Life Insurance Company, a life
insurance company formed under the laws of Pennsylvania, and another insurance
subsidiary of Penn Mutual. The address of Janney is 1801 Market Street,
Philadelphia, Pennsylvania 19103 and the address of HTK is 600 Dresher Road,
Horsham, Pennsylvania 19044. The address of each of their parent companies
described above is 600 Dresher Road, Horsham, Pennsylvania 19044.
PRINCIPAL SHAREHOLDERS
As of October 5, 2000, the Fund knew of no person who owned of record
or beneficially five percent or more of the Fund's shares.
B-18
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
Independence Capital Management, Inc. serves as the Fund's investment
adviser. The Adviser is a wholly-owned subsidiary of The Penn Mutual Life
Insurance Company. The Adviser acts as the Fund's investment adviser under an
Investment Advisory Agreement dated December 31, 1999. Prior to December 31,
1999, Addison Capital Management Company ("Addison") acted as the investment
adviser. Shareholders of the Fund approved the Investment Advisory Agreement
with ICMI at the Special Meeting of Shareholders held on December 16, 1999. The
Agreement provides that, subject to overall supervision by the Board of
Directors of the Fund, the Adviser will manage the investment affairs of the
Fund. The Adviser will be responsible for managing the Fund's portfolio and for
making purchases and sales of portfolio securities consistent with the Fund's
investment objective and policies described in the Prospectus and this Statement
of Additional Information.
The Adviser receives for its services a management fee, calculated
daily and payable monthly, at an annual rate of 0.75% of the average daily net
assets of the Fund for the first $100 million of average daily net assets, 0.50%
of average daily net assets exceeding $100 million but less than $250 million,
and 0.25% of average daily net assets exceeding $250 million. For the period
from December 31, 1999 through June 30, 2000, ICMI received $132,020 in advisory
fees from the Fund. For the fiscal years ended June 30, 1998, June 30, 1999 and
the period from July 1, 1999 through December 31, 1999, Addison received
$564,974, $506,771, and $192,959, respectively, in advisory fees from the Fund.
The Investment Advisory Agreement was approved by the Board of
Directors on October 27, 1999 and by the Fund's shareholders at a meeting held
on December 16, 1999. It will remain in effect from year to year, provided each
annual continuance is approved in the manner required by the Investment Company
Act and, in respect to any continuance, if the Adviser does not notify the Fund
at least 60 days prior to each anniversary date of the Investment Advisory
Agreement that it does not desire such continuance. Each continuance must be
approved by a majority of the Board of Directors or by vote of the holders of a
majority of the outstanding voting securities of the Fund. Additionally, the
Investment Advisory Agreement, and each continuance hereof, must be approved by
vote of a majority of the directors of the Fund who are not parties to the
Investment Advisory Agreement or "interested" persons of such parties as that
term is defined in the Investment Company Act. The Investment Advisory Agreement
may be terminated by the Fund, without penalty, on 60 days' written notice to
the Adviser and will terminate automatically in the event of its assignment.
Under a Services Agreement between the Fund and Janney, Janney provides
office space to the Fund, supervises performance by PFPC, Inc. ("PFPC") and by
the Fund's Custodian of their respective duties, and responds to shareholder
inquiries, for an annual fee equal to 0.25% of the Fund's average daily net
assets. This fee is in addition to the annual distribution fee which Janney will
also receive from the Fund. See "The Fund's Distributor" below. Janney has
waived payment of this fee since commencement of the Fund's operations through
June 30, 1993. Commencing July 1, 1993, Janney began collecting this fee from
the Fund. For the years ended June 30, 1999 and June 30, 2000, Janney received
service fees of $168,924, and $108,326, respectively.
B-19
<PAGE>
Pursuant to an Administration and Accounting Services Agreement dated
September 8, 1986 between PFPC and the Fund, PFPC performs accounting and
recordkeeping services for the Fund. For example, PFPC keeps all books and
records with respect to the Fund's security transactions, controls disbursements
from the Fund, daily computes the net asset value of the Fund, prepares monthly
financial statements and security transactions listings and quarterly broker
security transactions summaries, and provides various Fund statistical data on
an ongoing basis as requested. PFPC also prepares and files, on the Fund's
behalf, the Fund's annual and quarterly reports to the Securities and Exchange
Commission, assists in the preparation of federal and state tax returns, and
assists generally in all aspects of the Fund's operations other than those
duties to be performed by the Custodian, the Adviser and Janney. As fees for its
services, PFPC receives an annual fee equal to 0.10% of the Fund's average daily
net assets, with a minimum annual fee of $100,000, which PFPC has voluntarily
agreed to reduce to $65,000 effective April 1, 2000. For the fiscal years ended
June 30, 1998, June 30, 1999 and June 30, 2000, PFPC received fees of $77,410,
$87,696, and $91,297, respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
As a general rule, the timing of the Fund's purchases and sales of
securities will be based primarily on the investment merits of the securities
and only secondarily will timing be influenced by whether capital gains will be
long-term or short-term. Thus, the turnover rate may vary greatly from year to
year or during periods within a year. The portfolio turnover rate is computed by
dividing the lesser of purchases or sales of securities for the period by the
average value of portfolio securities for that period. The Fund's portfolio
turnover rate for the fiscal years ended June 30, 1999 and June 30, 2000 was
25.77%, and 71.23%, respectively.
Under the Investment Advisory Agreement, the Adviser is responsible for
the execution of the Fund's portfolio transactions and must seek best execution
for such transactions. Best execution, however, does not mean that the Fund
necessarily will be paying the lowest commission or spread available. Rather,
the Fund also will take into account such factors as size of the order,
difficulty of execution, efficiency of the executing broker's facilities
(including the services described below), and any risk assumed by the executing
broker.
B-20
<PAGE>
Consistent with the policy of best execution, the Adviser may give
consideration to research, statistical and other services furnished by brokers
or dealers to the Adviser for its use and may place orders with brokers who
provide supplemental investment and market research and securities and economic
analysis. Accordingly, the Investment Advisory Agreement also incorporates the
concepts of Section 28(e) of the 1934 Act by providing that, subject to the
approval of the Fund's Board of Directors, the Adviser may cause the Fund to pay
a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either the particular transaction or the overall
responsibilities of the Adviser to the Fund. Such research services may be
useful to the Adviser in connection with services to clients other than the
Fund. For the period from June 30, 1999 through December 31, 1999, Addison
directed transactions for the Fund aggregating $24,585,411 to broker-dealers for
research services, for which the broker-dealers received $52,946 in commissions,
and for the period from December 31, 1999 through June 30, 2000, ICMI directed
transactions for the Fund aggregating $65,224,934 to broker-dealers for research
services, for which the broker-dealers received $62,045 in commissions.
From time to time the Fund may use Janney as broker for agency
transactions in listed and over-the-counter securities at commission rates and
under circumstances consistent with the policy of best execution. Commissions
paid to Janney will not exceed "usual and customary" brokerage commissions. Rule
17e-1 under the Investment Company Act defines "usual and customary commissions"
to include amounts which are "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time."
For the fiscal year ended June 30, 1998, Janney received brokerage commissions
of $1,950, from the Fund. For the fiscal years ended June 30, 1999 and June 30,
2000, Janney received no brokerage commissions for securities transactions.
The Adviser will also select other brokers to execute portfolio
transactions. In the over-the-counter market, the Fund generally will deal with
responsible primary market-makers unless a more favorable execution can
otherwise be obtained.
The Fund may not buy securities from, or sell to, Janney as principal.
However, the Fund's Board of Directors has adopted procedures in conformity with
Rule 10f-3 under the Investment Company Act whereby the Fund may purchase
securities that are offered in underwritings in which Janney is a participant.
The Board of Directors of the Fund will consider the possibilities of seeking to
recapture for the benefit of the Fund expenses of certain portfolio
transactions, such as underwriting commissions and tender offer solicitation
fees, by conducting such portfolio transactions through affiliated entities,
including Janney, only to the extent such recapture would be permissible under
applicable regulations, including the rules of the NASD and other
self-regulatory organizations.
Section 11(a)(1)(H) of the 1934 Act repeals the managed account
provisions of Section 11(a) to allow members of national securities exchanges to
effect transactions on such exchanges for managed accounts, i.e. accounts for
which members exercise investment discretion. Pursuant to Section 11(a)(1)(H),
Janney is permitted, as a member of a national securities exchange, to perform
functions other than execution in connection with a securities transaction for
the Fund on that exchange only if the Fund expressly consents by written
contract. The Fund has expressly provided such consent in accordance with
Section 11(a)(1)(H).
Investment decisions for the Fund are made independently from those of
other accounts advised by the Adviser. However, the same security may be held in
the portfolios of more than one account.
B-21
<PAGE>
When two or more accounts simultaneously engage in the purchase or sale
of the same security, the prices and amounts will be equitably allocated among
each account. In some cases, this procedure may adversely affect the price or
quantity of the security available to a particular account. In other cases,
however, an account's ability to participate in large-volume transactions may
produce better executions and prices.
THE FUND'S DISTRIBUTOR
Janney is the distributor of the Fund's shares pursuant to an
Underwriting Agreement with the Fund and is the Fund's principal underwriter.
Janney's distribution services are performed on a "best effort" basis. Offering
of the Fund's shares will be continuous. The Underwriting Agreement obligates
Janney to pay for the printing and distribution of prospectuses and periodic
reports used in connection with the offering of Fund shares to prospective
investors, after the prospectuses and reports have been prepared, set in type
and mailed to existing shareholders at the Fund's expense, and for supplementary
sales literature and advertising costs. Rudolph C. Sander, who is Chairman of
the Board and a Director of the Fund, is also Chairman and Manager of Janney.
Charles J. Sullivan, a Vice President of the Fund, is also a Senior Vice
President and Manager of Janney.
As compensation for its services, Janney receives an annual
distribution fee equivalent to 0.65% of the Fund's average daily net assets in
accordance with the Distribution Plan described below. Janney has contractually
agreed to limit the Fund's total operating expenses by reducing the annual
distribution fee under the Fund's Distribution Plan from 0.65% of average daily
net assets to 0.40% of average daily net assets. This waiver may not be
discontinued for at least one year from November 1, 2000 and not without the
affirmative vote of the Fund's independent directors. However, Janney is still
able to collect the service fee described above under "Investment Advisory and
Other Services". The distribution fee will be computed daily and paid monthly.
For the fiscal years ended June 30, 1998, June 30, 1999, and June 30, 2000,
Janney received fees of $301,318, $270,278, and $173,322, respectively, from
the Fund for distribution services.
Prior to July 3, 1995, Janney also received, upon each sale of Fund
shares, the entire amount of the applicable sales charge. Commencing on July 3,
1995, Janney waived the payment of the 3% sales charge on purchases of Fund
shares. The Adviser agrees to pay Janney an amount equal to 0.25% of the Fund's
average daily net assets from its own assets. The Board of Directors of the Fund
determined that in order to encourage sales of Fund shares, it is reasonable to
permit the Adviser to use its own assets to pay Janney for its distribution
efforts and to permit Janney to waive sales charges on purchases of new Fund
shares, and has approved Janney's continuation of such waiver. Janney will not
re-introduce this sales charge without the prior consent of the Board, including
a majority of the "non-interested" directors as defined in the Investment
Company Act. Janney compensates HTK out of its own resources.
B-22
<PAGE>
The Fund has adopted a Distribution Plan ("Plan") which, among other
things, permits it to pay Janney the 0.65% distribution fee out of its net
assets. Janney uses most of the funds it receives to compensate sales personnel
and branch managers for their efforts in distributing Fund shares and keeping
shareholders informed about the Fund. The Plan was approved by the Fund's sole
shareholder on August 13, 1986 and, as required by Rule 12b-1 under the
Investment Company Act, was also approved by the Board of Directors of the Fund
on August 12, 1986, including a majority of the directors who were not
"interested persons" of the Fund as that term is defined in the Investment
Company Act and who had no direct or indirect financial interest in the
operation of the Plan or the Underwriting Agreement. In approving the Plan, in
accordance with the requirements of Rule 12b-1, the directors considered various
factors including the amount of the distribution fee. The directors determined
that there is a reasonable likelihood that the Plan will benefit the Fund and
the shareholders.
Although the payment by the Adviser to Janney in the amount of 0.25% of
the Fund's average net assets is made from the Adviser's own assets, the Board
of Directors has deemed such payment subject to the Plan. Accordingly, the Board
of Directors determined the payment from the Adviser is appropriate and
consistent with Rule 12b-1 and the Plan.
The Plan may be terminated by vote of a majority of the independent
directors of the Fund who have no direct or indirect financial interest in the
Plan or in the Underwriting Agreement, or by vote of a majority of the
outstanding voting securities of the Fund. Any change in the Plan that would
materially increase the distribution costs to the Fund requires shareholder
approval; otherwise the Plan may be amended by the directors, including a
majority of the independent directors, as described above.
The Plan continues in effect for successive one-year periods (from each
September 8 anniversary date), provided that each such continuance is
specifically approved by (i) the vote of a majority of the directors who are not
parties to the Underwriting Agreement or interested persons of any such party
and who have no direct or indirect financial interest in the Plan or Agreement;
and (ii) the vote of a majority of the entire Board of Directors. The Fund's
Board of Directors, including all non-interested directors, approved the
continuance of the Plan on September 6, 2000.
Rule 12b-1 requires that any person authorized to direct the
disposition of monies paid or payable by the Fund pursuant to the Plan or any
related agreement shall provide to the Fund's Board of Directors, and the
directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which expenditures were made. Rule 12b-1 also
provides that the Fund may rely on that rule only if the selection and
nomination of the Fund's independent directors are committed to the discretion
of such independent directors.
The Underwriting Agreement will continue in effect for successive
one-year periods subject to the same provisions for renewal as the Plan. In
addition, the Underwriting Agreement will terminate upon assignment or upon 60
days' notice, given prior to the second anniversary of the date of the agreement
and each anniversary thereafter, from Janney. The Fund may terminate the
Underwriting Agreement, without penalty, upon 60 days' notice, by a majority
vote of either its Board of Directors, the independent directors who have no
direct or indirect interest in the Plan or the Underwriting Agreement, or the
outstanding voting securities of the Fund.
B-23
<PAGE>
DESCRIPTION OF FUND SHARES
The Company has authorized capital of two billion shares of common
stock, par value $0.001. Each share will be entitled to one vote for the
election of directors and on any matter submitted to a shareholder vote.
Fractional shares will have fractional voting rights. Voting rights will not be
cumulative. Pursuant to the Maryland General Corporation Law, the Company is not
required to hold annual meetings of shareholders unless the Investment Company
Act requires action by the shareholders to elect members of the Board of
Directors under certain circumstances.
The Company's Articles of Incorporation authorize the Board of
Directors, without shareholder approval (unless otherwise required by applicable
law), to: (i) sell and convey the Company's assets to another management
investment company for consideration which may include securities issued by the
purchaser and, in connection therewith, to cause all outstanding shares to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (ii) sell and convert the Company's
assets into money and, in connection therewith, to cause all outstanding shares
to be redeemed at their net asset value; or (iii) combine the Company's assets
with the assets belonging to another portfolio of the Company hereafter
organized if the Board of Directors reasonably determines that such combination
will not have a material adverse effect on the shareholders and such other
portfolio and, in connection therewith, to cause all outstanding shares to be
redeemed or converted into shares of another class of the Company's capital
stock at net asset value. The exercise of such authority by the Board will be
subject, however, to the provisions of the Investment Company Act, including
Section 13(a)(4) of that Act which prohibits an investment company from changing
the nature of its business so as to cease being an investment company without
the authorizing vote of a majority of its outstanding voting securities.
B-24
<PAGE>
Shares of the Fund are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Meetings of shareholders for the purpose of electing Directors
will normally not be held, except insofar as elections are required under the
Investment Company Act. Such circumstances would arise in the event that (i)
less than a majority of the Directors have been elected by shareholders, or (ii)
if, as a result of a vacancy, less than two-thirds of the Directors have been
elected by the shareholders, the vacancy will be filled only by a vote of the
shareholders. In addition, the Directors may be removed from office by a written
consent signed by the holders of two-thirds of the outstanding shares and filed
with the Fund's custodian or by a vote of the holders of two-thirds of the
outstanding shares at a meeting called for the purpose. Such a meeting must be
held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon written request by ten or more shareholders, who have
been such for at least six months, and who hold shares constituting 1% of the
outstanding shares, stating that such shareholders wish to communicate with the
other shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Director, the Fund will undertake to
provide a list of shareholders or to disseminate appropriate materials (at the
expense of the requesting shareholders). Except as set forth above, each
Director shall continue to hold office and may appoint his successor.
THE FUND'S CUSTODIAN, TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Cash and securities owned by the Fund will be held by PFPC Trust
Company, 8800 Tinicum Blvd., Third Floor, Suite 200, Philadelphia, PA 19153, as
Custodian pursuant to a Custodian Agreement. Under the Custodian Agreement, the
Custodian will (i) maintain a separate account in the name of the Fund; (ii)
disburse money on behalf of the Fund; and (iii) collect all income and other
payments on account of the Fund's portfolio securities.
PFPC, Inc., P.O. Box 8916, Wilmington, Delaware 19899-8916, will serve
as the Fund's transfer agent and dividend disbursing agent pursuant to a
Transfer Agency Agreement. Under the Transfer Agency Agreement, PFPC will (i)
issue and redeem shares of the Fund; (ii) process dividend and distribution
payments to shareholders; (iii) mail annual and semi-annual reports, dividend
notices and other shareholder communications; (iv) respond to correspondence by
shareholders and others; and (v) maintain shareholder accounts. Shareholders who
request a historical transcript of their account from the Transfer Agent will be
charged a fee based upon the number of years researched. The Fund reserves the
right, upon 60 days' written notice, to make other charges to investors to cover
administrative costs.
THE FUND'S LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia,
Pennsylvania 19103, serves as counsel to the Fund and has passed upon certain
matters in connection with this offering. Mr. Jennings, who is Secretary of the
Fund, is a partner in the firm. The firm also acts as counsel to the Adviser and
to Janney.
B-25
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the Fund for the fiscal year ended June
30, 2000 and the report of Tait, Weller & Baker, independent auditors, all of
which are included in the Fund's 2000 Annual Report to Shareholders, are hereby
incorporated by reference in this Statement of Additional Information.
THE FUND'S INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
Tait, Weller & Baker, Eight Penn Center Plaza, Suite 800, Philadelphia,
Pennsylvania 19103 have been selected as the independent certified public
accountants for the Fund. The Financial Statements of the Fund which are
incorporated by reference to this Statement of Additional Information have been
examined by Tait, Weller & Baker, whose report thereon appears in such Financial
Statements, and which is given upon their authority as experts in accounting and
auditing.
B-26
<PAGE>
Item 23. Exhibits
(a)(1) Articles of Incorporation dated June 3, 1986 are
incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 11 to the Fund's Registration
Statement on Form N-1A filed with the SEC via EDGAR (Accession
No. 950116-96-1129) on October 21, 1996.
(a)(2) Articles of Amendment to Articles of Incorporation
filed with the State of Maryland Department of Assessments and
Taxation on February 16, 2000, filed herewith.
(b) By-Laws, as amended on March 7, 1990 are incorporated herein
by reference to Exhibit 2 of Post-Effective Amendment No. 11
to the Fund's Registration Statement on Form N-1A filed with
the SEC via EDGAR (Accession No. 950116-96-1129) on October
21, 1996.
(c) Instruments Defining Rights of Security Holders are
incorporated herein by reference to Exhibits 1 and 2 (Articles
and By-Laws) of Post-Effective Amendment No. 11 to the Fund's
Registration Statement on Form N-1A filed with the SEC via
EDGAR (Accession No. 950116-96-1129) on October 21, 1996.
(d)(1) Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. dated December 31, 1999,
filed herewith.
(d)(2) Expense Limitation Agreement dated November 1, 2000,
filed herewith.
(e)(1) Underwriting Agreement between the Registrant and
Janney Montgomery Scott LLC (formerly, Janney Montgomery Scott
Inc.) is incorporated herein by reference to Exhibit 6(a) of
Post-Effective Amendment No. 11 to the Fund's Registration
Statement on Form N-1A filed with the SEC via EDGAR (Accession
No. 950116-96-1129) on October 21, 1996.
(e)(2) Dealer Agreement between Janney Montgomery Scott LLC and
Hornor Townsend & Kent, Inc. dated February 14, 2000, filed
herewith.
(f) None.
(g) Custodian Agreement between the Registrant and Provident
National Bank is incorporated herein by reference to Exhibit 8
of Post-Effective Amendment No. 11 to the Fund's Registration
Statement on Form N-1A filed with the SEC via EDGAR (Accession
No. 950116-96-1129) on October 21, 1996.
(h)(1) Services Agreement between the Registrant and Janney
Montgomery Scott LLC (formerly, Janney Montgomery Scott Inc.)
is incorporated herein by reference to Exhibit 9(a) of
Post-Effective Amendment No. 11 to the Fund's Registration
Statement on Form N-1A filed with the SEC via EDGAR (Accession
No. 950116-96-1129) on October 21, 1996.
(h)(2) Administration and Accounting Services Agreement between the
Registrant and Provident Institutional Management Corporation
is incorporated herein by reference to Exhibit 9(b) of
Post-Effective Amendment No. 11 to the Fund's Registration
Statement on Form N-1A filed with the SEC via EDGAR (Accession
No. 950116-96-1129) on October 21, 1996.
(h)(3) Transfer Agency Agreement between the Registrant and Provident
Financial Processing Corporation is incorporated herein by
reference to Exhibit 9(c) of Post-Effective Amendment No. 11
to the Fund's Registration Statement on Form N-1A filed with
the SEC via EDGAR (Accession No. 950116-96-1129) on October
21, 1996.
(i) Opinion of Counsel, filed herewith.
(j) Consent of Tait, Weller & Baker, filed herewith.
<PAGE>
(k) None.
(l) Agreement with Janney Montgomery Scott LLC (formerly, Janney
Montgomery Scott Inc.) for providing Initial Capital is
incorporated herein by reference to Exhibit 13A of
Post-Effective Amendment No. 11 to the Fund's Registration
Statement on Form N-1A filed with the SEC via EDGAR (Accession
No. 950116-96-1129) on October 21, 1996.
(m) The Registrant's 12b-1 Plan is incorporated herein by
reference to Exhibit 15 of Post-Effective Amendment No. 11 to
the Fund's Registration Statement on Form N-1A filed with the
SEC via EDGAR (Accession No. 950116-96-1129) on October 21,
1996.
(n) Not applicable.
(o)(1) Code of Ethics for The Buttonwood Funds, Inc., filed herewith.
(o)(2) Code of Ethics for Independence Capital Management, Inc.,
filed herewith.
(o)(3) Code of Ethics for Janney Montgomery Scott LLC, filed
herewith.
(p) Powers of Attorney, filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant
Not Applicable.
Item 25. Indemnification
Article VII of the Registrant's Articles of Incorporation provides,
"The Corporation shall indemnify its present and past directors,
officers, employees, and agents, and persons who are serving or
have served at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or enterprise, to the maximum extent permitted
by applicable law, in such manner as may be provided in the
By-Laws; provided, that no director or officer of the Corporation
shall be indemnified against any liability to the Corporation or
its stockholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. The
Corporation may purchase insurance against any liability which may
be asserted against or incurred by any director or officer in such
capacity or arising out of his status as such (whether or not
indemnification with respect to such liability is permitted under
these Articles of Incorporation or any provision of law), as the
Board of Directors may determine."
Article VIII of the Registrant's By-Laws provides,
"ARTICLE VIII.1. Indemnification of Officers, Directors, Employees
and Agents. The Corporation shall indemnify its present and past
Directors, officers, employees, and agents, and persons who are
serving or have served at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or enterprise, to the maximum
extent provided and allowed by Md. Corp. and Assigns. Code
ss.2-418, as amended from time to time.
Article VIII.2. Limitations of Indemnification.
(a) Notwithstanding anything herein to the contrary, no
Director, officer, investment adviser, or principal underwriter of
the Corporation shall be indemnified for any liability, whether or
not there is an adjudication of liability, arising by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office or in
performance of its contract. Subject to the limitation of any
<PAGE>
applicable law, the determination of whether or not there has been
such disabling conduct may be determined by (1) a final decision on
the merits by a court or other body before whom the proceeding was
brought that such person to be indemnified was not liable by reason
of such disabling conduct, or (2) in the absence of such a
decision, a reasonable determination, based upon a review of the
facts, that such person to be indemnified was not liable by reason
of such disabling conduct, by (i) the vote of a majority of a
quorum of directors which are neither "interested persons", as
defined in the 1940 Act ("disinterested directors") nor parties to
the proceeding, or (ii) whether or not such quorum is obtainable,
if a majority of a quorum of disinterested directors so directs, by
an independent legal counsel in a written opinion.
(b) Notwithstanding anything herein to the contrary, no
expenses (including attorneys' fees) incurred by the Corporation's
Directors and officers in any pending proceeding shall be paid by
the Corporation in advance unless such person to be indemnified, or
someone on his behalf, undertakes to repay the advance unless it is
ultimately determined that he is entitled to indemnification and
(a) such person provides security for his undertaking, (2) the
Corporation is insured against losses arising by reason of any
lawful advances, or (3) a majority of a quorum of the disinterested
directors who are not parties to the proceeding, or an independent
legal counsel (chosen by a majority of a quorum of disinterested
directors) in a written opinion, shall determine, based upon a
review of readily available facts, that there is reason to believe
that such person will ultimately be entitled to indemnification."
In the Underwriting Agreement between the Fund and Janney
Montgomery Scott LLC, the Fund has agreed to indemnify Janney
against any liability arising out of any alleged untrue statement
of material fact, or failure to state a material fact, in the
Fund's Registration Statement and Prospectus, except liabilities
arising from the Distributor's will misfeasance, bad faith, or
gross negligence, and liabilities arising from written
misstatements furnished by the Distributor for use in the
Registration Statement. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant by
the Registrant pursuant to the Articles of Incorporation or
otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant
of express incurred or paid by trustees, officers or controlling
persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees,
officers or controlling persons in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issues.
Item 26. Business and Other Connections of Investment Adviser
None
Item 27. Principal Underwriter
(a) Janney does not act as principal underwriter for
any other investment company.
(b) The Directors and executive officers of Janney
Montgomery Scott LLC as of August 1, 2000 are
listed below. Except as otherwise noted, each
person's principal business address is at Janney
Montgomery Scott LLC, 1801 Market Street,
Philadelphia, Pennsylvania 19103.
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
-------------------------------------------------------------------------------------------------------------
<S> <C>
Aris, Hrazr G. 1st Vice President None
Armando, Patricia D. 1st Vice President None
Avallon, Richard 1st Vice President None
Barrett, William Joel(1) Sr. Vice President None
Bennett, Robert John 1st Vice President None
Berardino, Ronald Michael(1) Exec. Vice President and Manager None
Betz, William Raymond 1st Vice President None
Bevers, Douglas R. 1st Vice President None
Biggs, Randall 1st Vice President None
Bodine, James P. 1st Vice President None
Boorman, Jr., Robert H. 1st Vice President None
Brandreth, Sr., William Rea Sr. Vice President and Manager None
Brodie, Nancy S. Manager None
Carlin, Jr., William James 1st Vice President None
Chappell, Robert E. Manager None
Chelik, Robert John 1st Vice President None
Chuff, John J. 1st Vice President None
Cook, Jr., Charles Beckwith(1) Vice Chairman and Manager None
Crooks, Christopher M. 1st Vice President None
Croonquist, Jr., George Thomas Vice President None
Croonquist, Sr., George Thomas(2) Sr. Vice President and Manager None
Cully, Robert 1st Vice President None
Cunningham, David J. Sr. VP/Secretary/Manager None
Dallas, Paul A. 1st Vice President None
Day, Steve Woodward 1st Vice President None
Denofa, Lynn Marie 1st Vice President None
DiCicco, Dominic Charles 1st Vice President None
Doyle, Lawrence Patrick 1st Vice President None
Eldredge, Jr., Ashton Goodliff Sr. Vice President and Manager None
Fenton, Joseph Patrick Sr. Vice President None
Fertel, Craig A. Sr. Vice President None
Foley, Michael C. Sr. Vice President and Manager None
Fortuna, Jr., John 1st Vice President None
Gardner, Herbert M.(1) Sr. Vice President None
Gibson, Vernon L. 1st Vice President None
Gonzalez, Jay Clark 1st Vice President None
Gray, John Joseph Exec. Vice President and Manager None
Grim, Jack H. 1st Vice President None
Haidinger, Christopher 1st Vice President None
Harwanko, Mark 1st Vice President None
Howell, Christopher R. Sr. Vice President None
Hughes, John Patrick 1st Vice President None
Hunt, Lawrence David 1st Vice President None
Hunter, Jr., James J. 1st Vice President None
Jackson, Jr., Millard I. 1st Vice President None
Johnson, Lawrence Retlaw 1st Vice President None
Kashishian, Steven Sr. Vice President None
Kerr, Howard Brad 1st Vice President None
Kirkpatrick, Jr., Henry H. 1st Vice President None
Knott, Mark D. 1st Vice President, Controller and Asst. Treasurer None
Kontul, Philip A. 1st Vice President None
Lagana, Thomas Frank Sr. Vice President None
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Langen, Robert Carl 1st Vice President None
Ledva, Michael 1st Vice President None
Lee, Brian Westcott Sr. Vice President None
Lichtenthal, Steven Mark Sr. Vice President None
Locher, Scott 1st Vice President None
Lombard, Jr., Jerome F. 1st Vice President None
Lucas, James C. 1st Vice President None
Lynn, Kathleen A. Sr. Vice President None
Madvedoff, Mark E. Sr. Vice President None
Marks, Katherine A. 1st Vice President None
McAlenney, Jr., Edward Joseph 1st Vice President None
McCoy, Lance S. Sr. Vice President None
McCrea, James Anthony 1st Vice President and Assistant Secretary None
McLean, James E. 1st Vice President None
Meminger, Alan Smith 1st Vice President None
Metzger, Terry J. Sr. Vice President None
Meyer, James Maurice Sr. Vice President and Manager None
Mielziner, Norman Kenneth 1st Vice President None
Miller, Stephen P. 1st Vice President None
Morson, Christopher A. Sr. Vice President None
Mufson, Michael J. Sr. Vice President None
Munafo, Chistopher 1st Vice President None
Nash, Scott M. 1st Vice President None
Onori, Paul Nicholas 1st Vice President None
Orr, III, George R. 1st Vice President None
Patitucci, Michael Robert Sr. Vice President None
Purkiss, Richard Allen Sr. Vice President and Manager None
Radetzky, William Richard Sr. Vice President None
Reed, Robert 1st Vice President None
Reinhart, Peter 1st Vice President None
Richards, II, Robert Kenneth 1st Vice President None
Robinson, Edward A. Sr. Vice President None
Rosato, Kenneth Vincento Sr. Vice President None
Rubel, Steven K. 1st Vice President None
Ruello, John K. Sr. Vice President None
Rulon-Miller, William L. Sr. Vice President None
Sander, Rudolph Charles CEO/Co-Chairman/Manager Chairman and Director
Sanford, William Joseph 1st Vice President None
Schankel, Alan Miller Sr. Vice President and Manager None
Scherer, Howard B. Vice President/Director of Compliance None
Smith, Jr., Edward J. 1st Vice President None
Snader, Michael W. 1st Vice President None
Souder, Kevin E. 1st Vice President None
Spatacco, Michael Stephan Sr. Vice President None
Stambaugh, James B. Sr. Vice President None
Stark, Jeanette Louise 1st Vice President None
Sullivan, Charles John Sr. Vice President and Manager Vice President
Sutherland, William 1st Vice President None
Thornton, Richard Anson Sr. Vice President, CFO, Treasurer and Manager None
Thornton, Robert J. Sr. Vice President None
Thompson, Richard A. 1st Vice President None
Tickner, Will S. Sr. Vice President None
Waitneight, Stephen Karl(3) 1st Vice President None
Warren, Frederick R. 1st Vice President None
Weissenborn, Stanton Sr. Vice President None
Whitaker, Jr., Arthur James 1st Vice President None
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Wilde, Jr., Norman Taylor Co-Chairman/Manager None
Wolitarsky, James William President/COO/Manager None
Armstrong Linda L. Vice President None
Bajus Thomas E. Vice President None
Blair Robert T. Vice President None
Bodner Barbara Vice President None
Bradley Kevin L. Vice President None
Bryant Lorraine R. Vice President None
Bryson-Roberts Anne Vice President None
Chassen Arnold J. Vice President None
Derby Margaret L. Vice President None
Dillon Joseph J. Vice President None
Doran Christopher J. Vice President None
Durante John Vice President None
Fritz, Sr. Arthur A. Vice President None
Gilhool Edward W. Vice President None
Gress Susan E. Vice President None
Grimail Patrick W. Vice President None
Hanlin Richard D. Vice President None
Higgins Brian J. Vice President None
Hobelman John A. Vice President None
Huber, Jr. Christian Vice President None
Junior Jay L. Vice President None
Kearney Richard Vice President None
Kenney Robert G. Vice President None
Lowlicht Marc Vice President None
Lukehart Lewis I. Vice President None
Lurton Horace Van Vice President None
Marshall Richard B. Vice President None
Melchiorre Mary Ann Vice President None
Meschini, Jr. Felix A. Vice President None
Mills Robert P. Vice President None
Molaro George Vice President None
Monsour Thomas A. Vice President None
Moody Edward J. Vice President None
Murphy Jerome J. Vice President None
Napoli Michael F. Vice President None
Neft Michael Vice President None
Nezuh Charles D. Vice President None
Page, III L. Rodman Vice President None
Perry Edwin E. Vice President None
Remigino, Sr. Daniel S. Vice President None
Rios Ismael Vice President None
Roberts Jack A. Vice President None
Rothman Daniel L. Vice President None
Saling, Jr. Walter A. Vice President None
Schnepp Mary Vice President None
Shiftan Andrew D. Vice President None
Smith David S.J. Vice President None
Smith Paul C. Vice President None
Smith Wayne A. Vice President None
Sniffen William W. Vice President None
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Souza Walter J. Vice President None
Swanson William R. Vice President None
Tarangelo, Sr. Joseph A. Vice President None
Vance Charles D. Vice President None
Webb Walter D. Vice President None
Westhead, Jr. Walter J. Vice President None
Wicks Gregory Vice President None
Benoit Robert Assistant Vice President None
Deegan-Tindall Adele M. Assistant Vice President None
DeVassal Zina Assistant Vice President None
Duck Martha W. Assistant Vice President None
Dugan Tracy J. Assistant Vice President None
Eastburn Susan E. Assistant Vice President None
Eichel Robert S. Assistant Vice President None
Gariffo Linda L. Assistant Vice President/Operations None
Gerczyk Jr. Stanley Assistant Vice President/Operations None
Glancey Mary P. Assistant Vice President None
Goldenberg Lawrence F. Assistant Vice President None
Haas, Jr. Jay W. Assistant Vice President None
Howard Patricia Assistant Vice President None
Kelly Michael D. Assistant Vice President None
Keown Patricia R. Assistant Vice President None
Longo Peter A. Assistant Vice President None
Lund Jack a. Assistant Vice President None
Martin Robert J. Assistant Vice President None
Meehan Nancy A. Assistant Vice President None
Moser Linda L. Assistant Vice President None
Nguyen My Duyen Assistant Vice President None
Papp Carrie Assistant Vice President None
Raymond Donna D. Assistant Vice President None
Savarese, Jr. Robert E. Assistant Vice President None
Sirko Wanda Assistant Vice President None
Souza Frank R. Assistant Vice President None
Vecchio Dean Assistant Vice President None
Verrecchia Cindy Assistant Vice President None
Webb Barbara J. Assistant Vice President None
Witthohn Joseph G. Assistant Vice President None
Yost Michael Assistant Vice President None
(1)Principal Business Address is Janney Montgomery Scott LLC, 26 Broadway, New York, NY 10004.
(2)Principal Business Address is Janney Montgomery Scott LLC, 505 Main Street, Hackensack, NJ 07601.
(3)Principal Business Address is Janney Montgomery Scott LLC, 1909 E. Marlton Pike, Cherry Hill, NJ 08003.
</TABLE>
Item 28. Location of Accounts and Records
Books or other documents required to be maintained by
Section 31(a) of the 1940 Act, and the rules promulgated
thereunder, are maintained as follows:
(a) With the respect to Rule 31a-1(a);
(b)(1); (b)(2)(i); (3); and (7), the
required books and records are maintained
at the offices of the Registrant's
custodian, PFPC Trust Company, 8800
Tinicum Blvd., Third Floor, Suite 200,
Philadelphia, Pennsylvania 19153.
<PAGE>
(b) With respect to Rule 31a-1(a);
(b)(2)(ii), (iii); (5); (6); and (8) the
required books and records are maintained
at the offices of Registrant's accounting
and administrative services agent: PFPC,
103 Bellevue Parkway, Wilmington,
Delaware 19809.
(c) With respect to Rule 31a-1(a) and
(b)(2)(iv), the required books and
records are maintained at the offices of
Registrant's transfer agent: PFPC, Inc.,
3531 Silverside Road, Wilmington,
Delaware 19803.
(d) With respect to Rule 31a-1(d), the
required books and records are maintained
at the offices of the Fund's distributor,
Janney Montgomery Scott LLC, 1801 Market
Street, Philadelphia, Pennsylvania 19103.
(e) With respect to Rules 31a-1(a); (b)(9);
(10); (f), the required books and records
are maintained at the offices of
Registrant's Investment Adviser:
Independence Capital Management, Inc.,
Five Radnor Corporate Center, Suite 450,
Radnor, Pennsylvania 19087.
(f) With respect to records required by Rule
31a-1(b)(4), the required books and
records are maintained at the offices of
Registrant's counsel: Morgan, Lewis &
Bockius LLP, 1701 Market Street,
Philadelphia, Pennsylvania 19103.
Item 29. Management Services
None.
Item 30. Undertakings
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 16 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of
Philadelphia, in the Commonwealth of Pennsylvania, on the 30th day of October,
2000.
THE BUTTONWOOD FUNDS, INC.
Registrant
/s/ Richardson T. Merriman
---------------------------------
Richardson T. Merriman, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
/s/ Richardson T. Merriman President and Chief Executive October 30, 2000
--------------------------- Officer
Richardson T. Merriman
/s/Richardson T. Merriman Chairman of the Board and Director October 30, 2000
--------------------------
Rudolph C. Sander*
/s/ Richardson T. Merriman Director October 30, 2000
---------------------------
Margaret M. Healy*
/s/Richardson T. Merriman Director October 30, 2000
-------------------------
Charles E. Mather, III*
/s/ Richardson T. Merriman Director October 30, 2000
---------------------------
Collin F. McNeil*
/s/ Barbara S. Wood Treasurer and Chief Financial and October 30, 2000
-------------------- Accounting Officer
Barbara S. Wood
/s/ Richardson T. Merriman
--------------------------
*Richardson T. Merriman
Attorney-in-Fact
</TABLE>
<PAGE>
EDGAR EXHIBIT EXHIBIT INDEX
(a)(1) Articles of Incorporation dated June 3, 1986
are incorporated herein by reference to Exhibit 1
of Post-Effective Amendment No. 11 to the Fund's
Registration Statement on Form N-1A filed with the
SEC via EDGAR (Accession No. 950116-96-1129) on
October 21, 1996.
EX-99.B (a)(2) Articles of Amendment to Articles of
Incorporation filed with the State of Maryland
Department of Assessments and Taxation on February
16, 2000, filed herewith.
(b) By-Laws, as amended on March 7, 1990 are
incorporated herein by reference to Exhibit 2 of
Post-Effective Amendment No. 11 to the Fund's
Registration Statement on Form N-1A filed with the
SEC via EDGAR (Accession No. 950116-96-1129) on
October 21, 1996.
(c) Instruments Defining Rights of Security Holders
are incorporated herein by reference to Exhibits 1
and 2 (Articles and By-Laws) of Post-Effective
Amendment No. 11 to the Fund's Registration
Statement on Form N-1A filed with the SEC via
EDGAR (Accession No. 950116-96-1129) on October
21, 1996.
EX-99.B (d)(1) Investment Advisory Agreement between the
Registrant and Independence Capital Management,
Inc. dated December 31, 1999, filed herewith.
EX-99.B (d)(2) Expense Limitation Agreement dated
November 1, 2000, filed herewith.
(e)(1) Underwriting Agreement between the
Registrant and Janney Montgomery Scott LLC
(formerly, Janney Montgomery Scott Inc.) is
incorporated herein by reference to Exhibit 6(a)
of Post-Effective Amendment No. 11 to the Fund's
Registration Statement on Form N-1A filed with the
SEC via EDGAR (Accession No. 950116-96-1129) on
October 21, 1996.
EX-99.B (e)(2) Dealer Agreement between Janney Montgomery
Scott LLC and Hornor Townsend & Kent, Inc. dated
February 14, 2000, filed herewith.
(f) None.
(g) Custodian Agreement between the Registrant and
Provident National Bank is incorporated herein by
reference to Exhibit 8 of Post-Effective Amendment
No. 11 to the Fund's Registration Statement on
Form N-1A filed with the SEC via EDGAR (Accession
No. 950116-96-1129) on October 21, 1996.
(h)(1) Services Agreement between the Registrant
and Janney Montgomery Scott LLC (formerly, Janney
Montgomery Scott Inc.) is incorporated herein by
reference to Exhibit 9(a) of Post-Effective
Amendment No. 11 to the Fund's Registration
Statement on Form N-1A filed with the SEC via
EDGAR (Accession No. 950116-96-1129) on October
21, 1996.
(h)(2) Administration and Accounting Services Agreement
between the Registrant and Provident Institutional
Management Corporation is incorporated herein by
reference to Exhibit 9(b) of Post-Effective
Amendment No. 11 to the Fund's Registration
Statement on Form N-1A filed with the SEC via
EDGAR (Accession No. 950116-96-1129) on October
21, 1996.
(h)(3) Transfer Agency Agreement between the Registrant
and Provident Financial Processing Corporation is
incorporated herein by reference to Exhibit 9(c)
of Post-Effective Amendment No. 11 to the Fund's
Registration Statement on Form N-1A filed with the
SEC via EDGAR (Accession No. 950116-96-1129) on
October 21, 1996.
<PAGE>
EX-99.B (i) Opinion of Counsel, filed herewith.
EX-99.B (j) Consent of Tait, Weller & Baker, filed herewith.
(k) None.
(l) Agreement with Janney Montgomery Scott LLC
(formerly, Janney Montgomery Scott Inc.) for
providing Initial Capital is incorporated herein
by reference to Exhibit 13A of Post-Effective
Amendment No. 11 to the Fund's Registration
Statement on Form N-1A filed with the SEC via
EDGAR (Accession No. 950116-96-1129) on October
21, 1996.
(m) The Registrant's 12b-1 Plan is incorporated
herein by reference to Exhibit 15 of
Post-Effective Amendment No. 11 to the Fund's
Registration Statement on Form N-1A filed with the
SEC via EDGAR (Accession No. 950116-96-1129) on
October 21, 1996.
(n) Not applicable.
EX-99.B (o)(1) Code of Ethics for The Buttonwood Funds, Inc., filed
herewith.
EX-99.B (o)(2) Code of Ethics for Independence Capital Management,
Inc., filed herewith.
EX-99.B (o)(3) Code of Ethics for Janney Montgomery Scott LLC,
filed herewith.
EX-99.B (p) Powers of Attorney, filed herewith.
